SCA Annual Report 2010 En

110
SCA Annual Report 2010

Transcript of SCA Annual Report 2010 En

Page 1: SCA Annual Report 2010 En

SC

A A

nnual Rep

ort 2010

SVENSKA CELLULOSA AKTIEBOLAGET SCA (pUBL)PO Box 200, SE-101 23 STOCKHOLM, Sweden. Visiting address: Klarabergsviadukten 63 Tel +46 8 788 51 00, fax +46 8 788 53 80Corp. Reg. No.: 556012-6293 www.sca.com

Operations

GHC(GLOBAL HYGIENE CATEGORY)SE-405 03 GOTHENBURGSwedenVisiting address: Bäckstensgatan 5, Mölndal Tel +46 31 746 00 00

SCA TISSUE EUROpE ANDSCA pERSONAL CARE EUROpE MüNCHEN AiRPORT CENTER (MAC) Postfach 241540DE-85336 MüNCHEN-FLUGHAFEN GermanyVisiting address: Terminalstrasse Mitte 18 Tel +49 89 9 70 06-0Fax +49 89 9 70 06-204

SCA pACKAGING EUROpE Culliganlaan 1 DBE-1831 DiEGEMBelgiumTel +32 2 718 3711Fax +32 2 715 4815

SCA FOREST pRODUCTS SE-851 88 SUNDSVALLSwedenVisiting address: Skepparplatsen 1 Tel +46 60 19 30 00, +46 60 19 40 00 Fax +46 60 19 33 21

SCA AMERICAS Cira CentreSuite 26002929 Arch Street PHiLADELPHiA, PA 19104USATel +1 610 499 3700 Fax +1 610 499 3402

SCA ASIA pACIFICUnit 516, 159 Madang Road Xintiandi, Luwan District SHANGHAi 200020ChinaTel +86 21 6135 7288 Fax +86 21 6135 7264

SCA Annual Report 2010

❯❯❯

Contentsn Introduction

SCA at a glance ........................................................ flap

CEO’s message ............................................................. 2

The SCA share ............................................................... 4

Strategy ............................................................................. 6

Board of Directors’ Report

n SCA Group

Operations and structure ........................................ 10

Acquisitions, investments and divestments.. 11

Other Group information ........................................ 12

Sales and earnings ..................................................... 13

Operating cash flow .................................................. 14

Financial position ........................................................ 15

innovation ....................................................................... 16

Brands .............................................................................. 18

n Business areas

Personal Care .............................................................. 20

Tissue .............................................................................. 24

Packaging ...................................................................... 28

Forest Products .......................................................... 32

n Responsibility and governance

Corporate Governance ........................................... 36

Board of Directors and Auditors ......................... 42

Corporate Senior Management Team ............. 43

Risk and risk management ................................... 44

Sustainability ................................................................ 50

n Financial statements

Consolidated income statement ........................ 55

Consolidated statement of comprehensive income .......................................... 55

Consolidated statement of changes in equity ....................................................... 56

Consolidated operating cash flow statement ....................................................................... 56

Consolidated cash flow statement ................... 57

Consolidated balance sheet ................................ 59

Financial statements, Parent Company ......... 60

Notes ................................................................................ 62

Proposed distribution of earnings ..................... 96

Audit report ................................................................... 97

n SCA data

Multi-year summary ................................................. 98

Comments on the multi-year summary .......... 99

Description of expenses ...................................... 100

Raw materials, energy and transports .......... 100

Production capacity ............................................... 101

Definitions and key ratios .................................... 102

Glossary ....................................................................... 103

Annual General Meeting and Nomination Committee ........................................ 104

❯❯❯

SCA has been listed on the FTSE4Good global sustaina-bility index since 2001.

SCA was ranked as one of the world’s most sustainable companies in 2010 by the responsible business magazine Corporate Knights.

in 2008, SCA became a UN Global Compact member. SCA’s 2008 and 2009 Communication on Progress reports were selected as representative of Best Practice.

SCA was named one of the world’s most ethical compa-nies by the Ethisphere institute in the US.

SCA applies the Global Reporting initiative (GRi) at A level in its sustainability reporting. The report was audited by PwC.

SCA won FAR’s prize for the Best Sustainability Report 2009. FAR is a Swedish industry organisation for auditors and consultants.

SCA was cited as the best Swedish company for carbon dioxide reporting in the 2010 global Carbon Disclosure Project survey.

SCA is included in OMX GES Sustainability Nordic and OMX GES Sustainability Sweden, two indexes for respon-sible investments calculated by Nasdaq OMX in coopera-tion with GES investment Services.

Recognition

Page 2: SCA Annual Report 2010 En

SCA Group SCA is a global hygiene and paper company

that develops and produces personal care

products, tissue, packaging solutions and

forest products. SCA has sales in more than

100 countries under many strong brands.

Net sales, SEKm

109,142

Operating profit, SEKm

9,608

Capital employed, SEKm

102,227

Operating cash flow, SEKm

9,755

Average number of employees

45,341

Personal CareThe business area comprises three product

segments: incontinence care, baby diapers

and feminine care. Production is conducted

at 27 facilities in 23 countries. Products are

sold in more than 100 countries throughout

the world.

Share of net sales

22%SEK 25,027m

Share of operating profit

29%SEK 2,922m

Share of capital employed

11%SEK 10,620m

Share of operating cash flow

32%SEK 3,230m

Share of average number of employees

19%8,610 employees

TissueConsumer tissue consists of toilet paper,

kitchen rolls, facial tissue, handkerchiefs

and napkins. in the Away-From-Home (AFH)

tissue segment, SCA delivers complete

hygiene concepts to companies and institu-

tions. Production is conducted at 38 facili-

ties in 18 countries. Products are sold in

some 80 countries throughout the world.

Share of net sales

36%SEK 39,870m

Share of operating profit

30%SEK 3,041m

Share of capital employed

36%SEK 36,168m

Share of operating cash flow

39%SEK 4,033m

Share of average number of employees

38%17,327 employees

PackagingSCA is a full-service supplier of packaging

solutions and offers both transport and con-

sumer packaging. SCA operates one inno-

vation centre and 16 design centres. Pro-

duction is conducted at 170 facilities in 21

countries. Products are sold in 36 countries

in Europe.

Share of net sales

27%SEK 29,633m

Share of operating profit

16%SEK 1,577m

Share of capital employed

22%SEK 22,229m

Share of operating cash flow

11%SEK 1,168m

Share of average number of employees

34%15,218 employees

Forest ProductsProduction comprises publication papers,

pulp and solid-wood products, and is con-

ducted at 17 facilities in three countries.

Products are mainly sold in Europe, but also

in Asia, North Africa and North America.

Share of net sales

15%SEK 17,123m

Share of operating profit

25%SEK 2,455m

Share of capital employed

31%SEK 31,475m

Share of operating cash flow

18%SEK 1,860m

Share of average number of employees

9%4,186 employees

SCA at a glanceSCA creates value by fulfilling the needs of customers and consumers in a spirit of innovation, through continuous efficiency enhance­ments and with a clear desire to contribute to sustainable develop­ment. The Group develops, pro­duces and markets personal care products, tissue, packaging, publi­cation papers and solid­wood products, and has sales in more than 100 countries. In 2010, SCA had annual sales of SEK 109bn and about 45,000 employees.

North America, 9%

Latin America, 6%

Asia, 5%

Australasia, 4%

Other countries, 1%

Europe, 75%

Group’s largest markets

SCA’s sales per region

SEKm

DenmarkAustraliaSpainNetherlandsItalySwedenFranceUSUKGermany

0 4,000 8,000 12,000 16,000

Page 3: SCA Annual Report 2010 En

SCA Group SCA is a global hygiene and paper company

that develops and produces personal care

products, tissue, packaging solutions and

forest products. SCA has sales in more than

100 countries under many strong brands.

Net sales, SEKm

109,142

Operating profit, SEKm

9,608

Capital employed, SEKm

102,227

Operating cash flow, SEKm

9,755

Average number of employees

45,341

Personal CareThe business area comprises three product

segments: incontinence care, baby diapers

and feminine care. Production is conducted

at 27 facilities in 23 countries. Products are

sold in more than 100 countries throughout

the world.

Share of net sales

22%SEK 25,027m

Share of operating profit

29%SEK 2,922m

Share of capital employed

11%SEK 10,620m

Share of operating cash flow

32%SEK 3,230m

Share of average number of employees

19%8,610 employees

TissueConsumer tissue consists of toilet paper,

kitchen rolls, facial tissue, handkerchiefs

and napkins. in the Away-From-Home (AFH)

tissue segment, SCA delivers complete

hygiene concepts to companies and institu-

tions. Production is conducted at 38 facili-

ties in 18 countries. Products are sold in

some 80 countries throughout the world.

Share of net sales

36%SEK 39,870m

Share of operating profit

30%SEK 3,041m

Share of capital employed

36%SEK 36,168m

Share of operating cash flow

39%SEK 4,033m

Share of average number of employees

38%17,327 employees

PackagingSCA is a full-service supplier of packaging

solutions and offers both transport and con-

sumer packaging. SCA operates one inno-

vation centre and 16 design centres. Pro-

duction is conducted at 170 facilities in 21

countries. Products are sold in 36 countries

in Europe.

Share of net sales

27%SEK 29,633m

Share of operating profit

16%SEK 1,577m

Share of capital employed

22%SEK 22,229m

Share of operating cash flow

11%SEK 1,168m

Share of average number of employees

34%15,218 employees

Forest ProductsProduction comprises publication papers,

pulp and solid-wood products, and is con-

ducted at 17 facilities in three countries.

Products are mainly sold in Europe, but also

in Asia, North Africa and North America.

Share of net sales

15%SEK 17,123m

Share of operating profit

25%SEK 2,455m

Share of capital employed

31%SEK 31,475m

Share of operating cash flow

18%SEK 1,860m

Share of average number of employees

9%4,186 employees

SCA at a glanceSCA creates value by fulfilling the needs of customers and consumers in a spirit of innovation, through continuous efficiency enhance­ments and with a clear desire to contribute to sustainable develop­ment. The Group develops, pro­duces and markets personal care products, tissue, packaging, publi­cation papers and solid­wood products, and has sales in more than 100 countries. In 2010, SCA had annual sales of SEK 109bn and about 45,000 employees.

North America, 9%

Latin America, 6%

Asia, 5%

Australasia, 4%

Other countries, 1%

Europe, 75%

Group’s largest markets

SCA’s sales per region

SEKm

DenmarkAustraliaSpainNetherlandsItalySwedenFranceUSUKGermany

0 4,000 8,000 12,000 16,000

Page 4: SCA Annual Report 2010 En

SC

A A

nnual Rep

ort 2010

SVENSKA CELLULOSA AKTIEBOLAGET SCA (pUBL)PO Box 200, SE-101 23 STOCKHOLM, Sweden. Visiting address: Klarabergsviadukten 63 Tel +46 8 788 51 00, fax +46 8 788 53 80Corp. Reg. No.: 556012-6293 www.sca.com

Operations

GHC(GLOBAL HYGIENE CATEGORY)SE-405 03 GOTHENBURGSwedenVisiting address: Bäckstensgatan 5, Mölndal Tel +46 31 746 00 00

SCA TISSUE EUROpE ANDSCA pERSONAL CARE EUROpE MüNCHEN AiRPORT CENTER (MAC) Postfach 241540DE-85336 MüNCHEN-FLUGHAFEN GermanyVisiting address: Terminalstrasse Mitte 18 Tel +49 89 9 70 06-0Fax +49 89 9 70 06-204

SCA pACKAGING EUROpE Culliganlaan 1 DBE-1831 DiEGEMBelgiumTel +32 2 718 3711Fax +32 2 715 4815

SCA FOREST pRODUCTS SE-851 88 SUNDSVALLSwedenVisiting address: Skepparplatsen 1 Tel +46 60 19 30 00, +46 60 19 40 00 Fax +46 60 19 33 21

SCA AMERICAS Cira CentreSuite 26002929 Arch Street PHiLADELPHiA, PA 19104USATel +1 610 499 3700 Fax +1 610 499 3402

SCA ASIA pACIFICUnit 516, 159 Madang Road Xintiandi, Luwan District SHANGHAi 200020ChinaTel +86 21 6135 7288 Fax +86 21 6135 7264

SCA Annual Report 2010

❯❯❯

Contentsn Introduction

SCA at a glance ........................................................ flap

CEO’s message ............................................................. 2

The SCA share ............................................................... 4

Strategy ............................................................................. 6

Board of Directors’ Report

n SCA Group

Operations and structure ........................................ 10

Acquisitions, investments and divestments.. 11

Other Group information ........................................ 12

Sales and earnings ..................................................... 13

Operating cash flow .................................................. 14

Financial position ........................................................ 15

innovation ....................................................................... 16

Brands .............................................................................. 18

n Business areas

Personal Care .............................................................. 20

Tissue .............................................................................. 24

Packaging ...................................................................... 28

Forest Products .......................................................... 32

n Responsibility and governance

Corporate Governance ........................................... 36

Board of Directors and Auditors ......................... 42

Corporate Senior Management Team ............. 43

Risk and risk management ................................... 44

Sustainability ................................................................ 50

n Financial statements

Consolidated income statement ........................ 55

Consolidated statement of comprehensive income .......................................... 55

Consolidated statement of changes in equity ....................................................... 56

Consolidated operating cash flow statement ....................................................................... 56

Consolidated cash flow statement ................... 57

Consolidated balance sheet ................................ 59

Financial statements, Parent Company ......... 60

Notes ................................................................................ 62

Proposed distribution of earnings ..................... 96

Audit report ................................................................... 97

n SCA data

Multi-year summary ................................................. 98

Comments on the multi-year summary .......... 99

Description of expenses ...................................... 100

Raw materials, energy and transports .......... 100

Production capacity ............................................... 101

Definitions and key ratios .................................... 102

Glossary ....................................................................... 103

Annual General Meeting and Nomination Committee ........................................ 104

❯❯❯

SCA has been listed on the FTSE4Good global sustaina-bility index since 2001.

SCA was ranked as one of the world’s most sustainable companies in 2010 by the responsible business magazine Corporate Knights.

in 2008, SCA became a UN Global Compact member. SCA’s 2008 and 2009 Communication on Progress reports were selected as representative of Best Practice.

SCA was named one of the world’s most ethical compa-nies by the Ethisphere institute in the US.

SCA applies the Global Reporting initiative (GRi) at A level in its sustainability reporting. The report was audited by PwC.

SCA won FAR’s prize for the Best Sustainability Report 2009. FAR is a Swedish industry organisation for auditors and consultants.

SCA was cited as the best Swedish company for carbon dioxide reporting in the 2010 global Carbon Disclosure Project survey.

SCA is included in OMX GES Sustainability Nordic and OMX GES Sustainability Sweden, two indexes for respon-sible investments calculated by Nasdaq OMX in coopera-tion with GES investment Services.

Recognition

Page 5: SCA Annual Report 2010 En

The year at a glance

Key figures

2010 2009 2008

SEK EUR2) SEK EUR2) SEK EUR2)

Net sales, SEKm/EURm 109,142 11,450 110,857 10,466 110,449 11,532

Operating profit, SEKm/EURm 8,677 911 8,190 773 8,554 893

Operating profit1), SEKm/EURm 9,608 1,008 9,648 910 8,554 893

Operating margin, % 8 7 8

Operating margin, %1) 9 9 8

Profit before tax, SEKm/EURm 7,561 794 6,546 618 6,237 651

Profit before tax1), SEKm/EURm 8,492 891 8,004 755 6,237 651

Profit for the year, SEKm/EURm 5,592 587 4,830 456 5,598 584

Profit for the year1), SEKm/EURm 6,281 659 5,906 557 5,598 584

Earnings per share, SEK 7.90 6.78 7.94

Earnings per share1), SEK 8.89 8.32 7.94

Cash flow from current operations per share, SEK 10.53 16.36 5.42

Dividend, SEK 4.003) 3.70 3.50

Strategic investments, incl. acquisitions, SEKm/EURm –2,920 –306 –3,082 –291 –4,873 –509

Equity, SEKm/EURm 67,821 7,538 67,906 6,577 67,252 6,147

Return on capital employed, % 8 7 8

Return on capital employed, %1) 9 9 8

Return on equity, % 8 7 9

Return on equity, %1) 9 9 9

Debt/equity ratio, multiple 0.51 0.60 0.70

Average number of employees 45,341 49,531 51,999

1) Excluding items affecting comparability.2) See page 48 for exchange rates. 3) Proposed dividend.

Net sales amounted to SEK 109,142m (110,857)

Profit before tax1) totalled SEK 8,492m (8,004)

Earnings per share amounted to SEK 7.90 (6.78)

Proposed dividend is SEK 4.00 (3.70) per share1) Excluding items affecting comparability.

Net sales and operating margin

Net sales Operating margin

SEKm %

0

20,000

40,000

60,000

80,000

100,000

120,000

201020092008200720060

2

4

6

8

10

12

Excluding items affecting comparability.

Earnings, dividend and cash flow per share

Earnings Dividend

Cash flow from current operations

SEK

0

4

8

12

16

20

20102009200820072006

Earnings do not include items affecting comparability. Dividend for 2010 relates to the proposed dividend.

SEKm

0

2,000

4,000

6,000

8,000

10,000

12,000

20102009200820072006

Cash flow from current operations

SCA Annual Report 2010 1

Page 6: SCA Annual Report 2010 En

Strategy for sustainable profitability

All of SCA’s business areas recorded an increase in sales in 2010. New products were developed and launched at an accelerated pace and the Group’s positions in both mature and emerging markets were strengthened. SCA’s sales rose by 5%, adjusted for exchange rate effects and divestments, while profit before tax increased by 6%, despite increased raw material costs and negative exchange rate effects. Earnings per share rose 17% and net debt was reduced by SEK 6bn.

Performance in 2010In 2010, we observed a gradual recovery in the

global economy and demand improved for all of

our businesses. However, the strained budgetary

situation in a number of countries impeded recov-

ery and created a slight sense of uncertainty as

regards future economic growth.

All business areas increased sales in local cur-

rencies and, as was the case last year, we were

faced with new challenges, including rising raw

material prices and a stronger Swedish krona.

Thanks to our strategy, which focuses on costs

and cash flow, capital efficiency, innovation and

growth, our profit before tax for the year exceed

the 2009 level. Higher volumes in all business

areas, implemented price increases for Tissue

and Packaging, combined with SEK 1bn in cost

savings, offset a rise of SEK 5.2bn in raw material

costs in addition to negative exchange rate

effects. Net debt was reduced by SEK 6bn, of

which net cash flow accounted for SEK 3bn and

exchange rate and translation effects for the

remaining portion. The debt payment capacity

improved during the year.

Personal Care

Personal Care noted favourable sales growth for

incontinence care and feminine care products,

which was partially the result of higher invest-

ments in marketing activities. We also broadened

our product range of incontinence care products

under the TENA brand and grew our market

shares. The rise in sales for personal care prod-

ucts in emerging markets was particularly healthy

and a 10% increase was recorded. Nevertheless,

profit for Personal Care was below the 2009 level,

since higher volumes could not fully offset the ris-

ing cost of raw materials and marketing activities.

During the year, an efficiency improvement pro-

gramme was launched in the European diaper

business aimed at enhancing profitability and the

product offering.

Tissue

Demand for AFH tissue improved in pace with the

economic upswing, while demand for consumer

tissue remained stable. Sales in emerging mar-

kets grew 6% during the year. However, the sharp

rise in raw material prices resulted in a decline in

operating profit for Tissue compared with the pre-

ceding year. In the AFH segment, the Tork brand

increased its market shares in North America and

Europe and efforts to reduce the number of con-

sumer tissue brands in Europe proceeded

according to plan.

Packaging

Western European demand for corrugated board

improved in pace with the economic recovery and

rising industrial production and recorded an

increase of 5%. Packaging was also affected by a

steep rise in raw material prices, which were offset

by price increases for both containerboard and

corrugated board. Combined with higher volumes

and the savings generated by the restructuring

programme, operating profit improved signifi-

cantly compared with the preceding year and we

are now stronger and better prepared to face the

competition.

Forest Products

Forest Products noted a slight improvement in

net sales compared with the preceding year. The

trend for pulp and solid-wood products was

especially healthy and the rise in sales and

improved profit was mainly attributable to the

price increases carried out during the year. Raw

material prices increased for the publication

papers business at the same time as prices for

our own products were lower, thus adversely

impacting earnings. The operating profit achieved

SCA Annual Report 20102

Introduction | CEO’s message

Page 7: SCA Annual Report 2010 En

by the business area as a whole was in line with

the preceding year, despite negative exchange

rate effects.

Improved capital efficiency

As part of efforts during the year to improve capi-

tal efficiency, we initiated efficiency improvement

programmes in the European baby diaper busi-

ness and in Forest Products. Work on the restruc-

turing programme that Packaging started in 2009

was completed during the year. As a result of

these and other Group-wide measures, we cut our

costs by SEK 1bn in 2010 compared with 2009.

GrowthEfficiency and innovation to generate sustainable

growth is an effective strategy for achieving long-

term competitiveness. These priorities have

served us well in the past year and will help guide

the Group’s future activities. SCA’s positions in

mature and emerging markets were strengthened

and the Group’s sales rose by 5%, adjusted for

exchange rate effects and divestments. With

strong global and regional market positions and

brands, a high pace of innovation and efficient

production, SCA is well-positioned to leverage

growth opportunities and improve profitability.

Our strategy for existing markets is to continue

growing by, for example, broadening the offering

of product categories, product ranges and ser-

vices. Growth will mainly be generated organi-

cally, in existing and new segments, but also

through acquisitions. As a result of a gradual

improvement in the global economy in 2010,

the potential for growth is even greater in 2011.

Hygiene business

SCA is the world’s third-largest hygiene company

and sales of hygiene products account for about

60% of the Group’s total sales. Today, we hold

the number one or two position in many of the

markets where we are active. The growth poten-

tial for hygiene products is favourable, particularly

in emerging markets where rising disposable

incomes lead to growth in demand. Sales in these

markets in 2010 increased 8% in local currencies.

The ambition is to further accelerate our expan-

sion and a number of activities were implemented

during the year to increase growth and improve

profitability. In the Russian market, we com-

menced production of baby diapers at a new pro-

duction facility. Incontinence care products will

also be manufactured at this plant in 2011. In

Mexico, we acquired the third-largest supplier of

baby diapers and inaugurated a new tissue facil-

ity during the year. Construction work was started

on a tissue plant in Colombia, with production set

to commence in 2011. Market tests of inconti-

nence care products in China, which were started

in 2009, were extended to additional regions dur-

ing the year, and feminine care products were

launched in Malaysia under the Libresse brand.

Our insight and innovation work also constitute

an integral part of efforts to generate increased

growth and profitability. During the year, we devel-

oped a new innovation strategy for hygiene prod-

ucts and invested in greater consumer insight, in

addition to trend, market and competitor intelli-

gence, and research and design. This has enabled

us to deliver a larger number of new products and

services at an ever-increasing pace, which has

also strengthened our customer offering and

brands. Among other activities, we launched a

new dispenser range for industrial customers,

thinner baby diapers and ultra-thin incontinence

care products during the financial year.

Packaging and Forest Products

SCA is Europe’s second-largest packaging com-

pany and our customer-driven innovation work

and continued efficiency enhancement pro-

grammes are important to strengthening posi-

tions and improving profitability. The focus on

expanding the share in high value-added seg-

ments continues as does the development of

packaging solutions with respect to function,

design, logistics, transport and environmental

impact. For example, SCA developed Trueflo dur-

ing the year, a specially designed and fully recy-

clable solution for secure bulk shipment of liq-

uids. SCA also launched ZeoCool, a temperature-

controlled packaging that can maintain complete

product integrity.

SCA is also one of Europe’s most profitable

producers of forest products and prioritises inno-

vation and efficiency to strengthen positions and

improve profitability. Efforts are primarily aimed

at increasing the share of customised products

for both publication papers and solid-wood

products. Other aspects that are important to

strengthen competitiveness include developing

the value chain and making it more efficient and

sustainable, and identifying new product areas.

The new business unit SCA Energy was created

during the year to advance SCA’s growing renew-

able energy business. SCA is Europe’s largest

private forest owner and practices profitable and

responsible forest management coupled with

prudent nature consideration. The forest’s stable

and sustainable growth contributes to SCA’s

long-term value creation. Aside from its valuable

contribution to raw material integration, the forest

offers the potential for electricity generation, both

in the form of biofuel and wind power.

Sustainable value creationSCA’s sustainability activities are integrated into

the business and the Group’s strategy for growth

and value creation. We pursue continuous devel-

opment to achieve our ambitious targets. A

strong sustainability profile and position – for

both the Group’s product brands and the SCA

brand itself – is the key to increasing competitive-

ness.

A stronger SCAThe experiences gained from the recession and

the challenges we faced in 2010 have added to

our knowledge. Our ability to offset the sharp rise

in raw materials and the negative effects of a

strong Swedish krona on the Group’s profit is

proof of our strength.

Our competitiveness is supported by SCA’s

broad product portfolio and raw material integra-

tion and we are a stronger company today than

one year ago. We have stronger brands, more

competitive products and more innovative prod-

uct development. Combined with a clear strategy,

leading market positions, rising demand in all

business areas and, above all, the continued

strong dedication of all employees, I believe there

is good potential for continued efficiency

improvements and increased, sustainable value

creation for our shareholders and other stake-

holders.

Jan Johansson, President and CEO

SCA Annual Report 2010 3

CEO’s message | Introduction

Page 8: SCA Annual Report 2010 En

The SCA share in 2010

The 2010 closing price on the Nasdaq OMX

Stockholm for SCA’s B shares was SEK 106.20

(95.45), corresponding to a market capitalisation

of SEK 74bn (67). SCA’s market capitalisation

corresponds to slightly less than 2% (2) of the

total market capitalisation on the Nasdaq OMX

Stockholm. Since the beginning of 2010, the

share price rose 11%, while the Nasdaq OMX

Stockholm rose 23% during the same period. The

highest closing price for SCA’s B shares during

the year was SEK 108.80, which was noted on 23

February. The lowest price was SEK 84.00 on 20

May. The proposed dividend is SEK 4.00 per

share, see below under the section “Dividend.”

Trading in SCA sharesIn 2010, SCA celebrated its 60th anniversary as a

listed company. SCA shares are quoted and

traded primarily on the Nasdaq OMX Stockholm,

and as American Depository Receipts (ADR level

1) in the US through Deutsche Bank. In addition

to indexes directly linked to the Nasdaq OMX

Stockholm, SCA is included in other indexes,

such as the FTSE Eurotop 300 and MSCI Eurotop

300. SCA is also represented in sustainability

indexes, including the FTSE4Good.

LiquidityIn 2010, the volume of SCA shares traded on the

Nasdaq OMX Stockholm was 678 million (653),

representing a value of approximately SEK 67bn

(53). Average daily trading for SCA on the Nasdaq

OMX Stockholm amounted to 2.7 million shares,

corresponding to a value of SEK 267m (211).

Trading on Chi-X, BATS Europe, Burgundy and

Turquoise amounted to 260 million SCA shares

during the year, corresponding to about 25% of

total trading in the share.

OwnershipSome 57% (58) of the share capital is owned by

investors registered in Sweden and 43% (42) by

foreign investors. The US and the UK account for

the highest percentage of shareholders registered

outside Sweden, with 15% and 14%, respec-

tively.

DividendThe Board of Directors has proposed a dividend

to shareholders of SEK 4.00 per share for the

2010 financial year. The 2010 dividend represents

a dividend yield of 3.8% per share, based on

SCA’s share price at the end of the year. SCA’s

dividend policy is described on page 8.

Ticker names

Nasdaq OMX Stockholm SCA A, SCA B

New York (ADR level 1) SVCBY

Total shareholder return 2010

Total shareholder return 2008–2010

Total shareholder return 2006–2010

0

3,000

6,000

9,000

12,000

DecNovOctSepAugJulJunMayAprMarFebJan

SCA B Daily trading SCA B

IndexThousand shares

60

80

100

120

140

MSCI Europe

SCA B index, total shareholder return

Index

Competitor index, total shareholder return1)

40

60

80

100

120

201020092008

0

50

100

150

200

250

300

20102009200820072006

SCA B Trading per quarter SCA B

IndexMillion shares

0

25

50

75

100

125

150

MSCI Europe

1) Weighted index of competitors’ total shareholder return. SCA’s total shareholder return also surpasses that of its competitors over a five and ten-year term. Competitors are selected to reflect SCA’s opera-tions. They comprise 40% hygiene companies, 30% packaging companies and 30% forest companies. The index is used when comparing the SCA share’s performance over a three-year term for the long-term portion (LTI) of senior executive’s variable remuneration.

SCA Annual Report 20104

Introduction | The SCA share

Page 9: SCA Annual Report 2010 En

Data per share

All earnings figures include items affecting comparability unless otherwise indicated.SEK per share unless otherwise indicated 2010 2009 2008 2007 2006

Earnings per share after full tax:

After dilution 7.90 6.78 7.94 10.16 7.75

After dilution, excluding items affecting comparability 8.89 8.32 7.94 9.80 7.75

Before dilution 7.90 6.78 7.94 10.17 7.76

Market price for B share:

Average price during the year 100.20 83.18 84.76 119.00 107.24

Closing price, 31 December 106.20 95.45 66.75 114.50 119.17

Cash flow from current operations1) 10.53 16.36 5.42 6.42 3.95

Dividend 4.002) 3.70 3.50 4.40 4.00

Dividend growth, %3) 4 5 6 9 9

Dividend yield 3.8 3.9 5.2 3.8 3.4

P/E ratio4) 13 14 12 11 14

Price/EBIT5) 13 13 11 12 14

Beta coefficient6) 0.82 0.78 0.84 0.73 0.73

Pay-out ratio (before dilution), % 51 55 44 41 48

Equity, after dilution 96 96 95 91 83

Equity, before dilution 96 96 94 90 83

Average number of shares after dilution (millions)7) 702.3 702.3 702.2 702.2 701.4

Number of registered shares 31 December (millions)7) 705.1 705.1 705.1 705.1 705.1

Number of shares after full conversion (millions)7) 705.1 705.1 705.1 705.1 705.1

1) See definitions of key ratios on page 102.2) Board proposal.3) Rolling 10-year data.4) Share price at year-end divided by earnings per share after full tax and dilution.5) Market capitalisation plus net debt plus non-controlling interests divided by operating profit. (EBIT = earnings before interest and taxes).6) Share price volatility compared with the entire stock exchange (measured for rolling 48 months).7) 2006 adjusted for 3:1 split.

Shareholders by country, capital

Shareholders by category, capital

SCA’s ten largest shareholders

According to Euroclear’s official share register for directly registered and

trustee-registered shareholders at 31 December 2010, the following compa-

nies, foundations and mutual funds were the ten largest registered share-

holders based on voting rights (before dilution):

Shareholder No. of votes Votes % No. of shares Holding %

AB Industrivärden 474,700,000 29.33 68,800,000 9.76

Handelsbanken* 223,495,284 13.81 36,755,787 5.21

SEB* 85,048,211 5.26 16,655,114 2.36

Skandia 59,495,387 3.68 7,188,215 1.02

Alecta 36,720,120 2.27 14,040,012 1.99

AMF – Insurance and Funds 18,879,740 1.17 14,234,354 2.02

Nordea 17,855,611 1.10 7,322,056 1.04

Second Swedish National Pension Fund 15,515,795 0.96 11,697,923 1.66

Third Swedish National Pension Fund 13,247,164 0.82 5,828,851 0.83

Swedbank Robur funds 12,640,893 0.78 12,462,063 1.77

* Including mutual funds and foundations. Source: Euroclear

Shareholder structure

HoldingNo. of share-

holders No. of shares Holding % Votes %

1–500 47,711 8,877,736 1.26 1.24

501–1,000 13,930 10,645,331 1.51 1.36

1,001–5,000 15,786 34,614,863 4.91 4.65

5,001–10,000 2,148 15,510,524 2.20 2.02

10,001–15,000 609 7,668,469 1.09 0.99

15,001–20,000 309 5,533,305 0.78 0.61

20,001– 1,278 622,259,866 88.25 89.13

Total 81,771 705,110,094 100.00 100.00

Source: Euroclear

Percentage of foreign ownership

2010 2009 2008 2007 2006

% 43 42 41 43 43

Share distribution

31 December 2010 Series A Series B Total shares

Number of registered shares 101,408,278 603,701,816 705,110,094

of which treasury shares 2,767,605

Shares issues, etc. 1993–2010

Since the beginning of 1993, the share capital and the number of shares have increased due to issues of new shares, conversions and splits, as detailed below:

No. of sharesIncrease in share

capital, SEKmCash payment,

SEKm Series A Series B Total

1993 Conversion of debentures and new subscription through Series 1 warrants 4,030,286 40.3 119.1

New share issue 1:10, issue price SEK 80 17,633,412 176.3 1,410.7 62,145,880 131,821,657 193,967,537

1994 Conversion of debentures 16,285 0.2 – 62,145,880 131,837,942 193,983,822

1995 Conversion of debentures 3,416,113 34.2 – 62,145,880 135,254,055 197,399,935

1999 New share issue 1:6, issue price SEK 140 32,899,989 329.0 4,579.0 62,133,909 168,166,015 230,299,924

2000 Conversion of debentures 101,631 1.0 15.0 61,626,133 168,775,422 230,401,555

2001 New share issue, private placement 1,800,000 18.0 18.0 45,787,127 186,414,428 232,201,555

2002 New share issue through IIB warrants 513 0 0.1 41,701,362 190,500,706 232,202,068

2003 Conversion of debentures and subscriptions through IIB warrants 2,825,475 28.3 722.9 40,437,203 194,590,340 235,027,543

2004 Conversion of debentures 9,155 0.1 1.1 40,427,857 194,608,841 235,036,698

2007 Split 3:1 470,073,396 – – 112,905,207 592,204,887 705,110,094

US, 15%

UK, 14%

Luxembourg, 3%

France, 2%

Other, 9%

Sweden, 57%

Private individuals, 19%

Source: Euroclear

Institutions, 81%

SCA Annual Report 2010 5

The SCA share | Introduction

Page 10: SCA Annual Report 2010 En

SCA is a global hygiene and paper company that develops and produces personal care products, tissue, packaging solutions and forest products. The Group’s sales amount to SEK 109bn, with the hygiene business accounting for 60% of this amount. SCA sells its products in some 100 countries under many strong brands, including TENA and Tork, both of which are globally leading brands.

Efficiency and innovation to generate sustainable

growth is an effective strategy for achieving long-

term competitiveness. These priorities were

important in the past year and will form the basis

for the Group’s continued work. SCA’s prioritised

areas are costs and cash flow, capital efficiency,

innovation and growth. The Group’s proximity to

customers and consumers, and knowledge of

local and regional market conditions – combined

with global experience, strong brands, efficient

production and innovativeness – represent key

competitive factors. Sustainability is also a priori-

tised area and forms an integral part of the busi-

ness and of the Group’s strategy for growth and

value creation. As a consequence of the steady

improvement in the global economy in 2010, there

is greater potential for growth in 2011.

Strategy

Costs, cash flow and capital efficiencySCA is active in an intensely competitive market

and a continuous focus on cost efficiency is vital

to ensure the continued competitiveness of the

Group. Reducing costs and increasing capital

efficiency generates improved cash flow and

value creation.

Improved capital efficiency, lower costs and

strengthened cash flow are achieved through effi-

ciency-enhancement measures and optimisation

of capital employed in all parts of the Group. As a

rule, more efficient production also yields positive

environmental effects and lower costs. One

example of this is the 1,300 small-scale energy-

saving activities carried out by the Group in

recent years, resulting in a reduction in carbon

dioxide emissions and annual savings of about

SEK 600m. Special attention is also given to

leveraging synergies between operations and

improving the supply chain, as well as discon-

tinuing non-competitive units.

In 2010, the Group’s focus on costs and cash

flow, as well as capital efficiency, yielded the fol-

lowing:

• Restructuring programmes and savings mea-

sures in all areas of the Group contributed to a

cost reduction of about SEK 1bn.

• Cash flow from current operations amounted

to SEK 7.4bn.

• Improved productivity and efficiency in sub-

stantial parts of the Group combined to in-

crease capital efficiency.

• Net debt declined by SEK 6bn, of which net

cash flow accounted for SEK 3bn and ex-

change rate and translation effects for the re-

mainder. The debt payment capacity improved.

InnovationInnovation is a means of developing and differen-

tiating SCA’s products and services, retaining and

strengthening market positions, building strong

brands, driving growth by expanding the offering

to existing customers in existing markets, and

attracting new customers in new markets.

Sustainability aspects and product safety are

high on the agenda of customers and consumers

and, consequently, so is the development of new

products and services.

SCA has a long history of successful innova-

tions. The company’s innovation activities are

pursued in line with a model adapted to match

the requirements of the individual business areas.

The innovation process represents a fundamental

framework for concept generation and is based

on trends in the business environment, insight

into customer and consumer requirements and

technological progress. Through well-defined

process steps, creative and valuable ideas are

developed in a systematic an effective manner

toward the launch of sustainable, value-generat-

ing and profitable products and services.

SCA also applies open innovation as an inte-

gral part of the innovation process. Open innova-

tion enables access to external competence and

resources, which is particularly valuable in terms

of customer and consumer insight, and know-

how from related industries in a global perspec-

tive. The interaction between open innovation

and SCA’s in-house innovation activities helps to

accelerate the development process and cut

costs.

The Group-wide model also generates cost

synergies and enables efficient resource allocation.

In 2010, the Group developed a new innovation

strategy for hygiene products and investments

were made in greater consumer insight, in addi-

tion to trend, market and competitor intelligence,

and research and design. This has enabled the

Group to deliver more new products at an

increasingly rapid pace, which also strengthens

the customer offering and brands.

The number of patent applications is directly

related to innovation activities. SCA’s patent

department drives and creates value from intellec-

tual property rights that is closely linked to SCA’s

growth and profitability. Read more about SCA’s

work in the area of innovation on pages 16 and 17.

GrowthSCA aims to be the leading company in the mar-

kets in which it conducts operations. All opera-

tions in mature markets, such as Western Europe

and North America, will continue to strengthen

their positions. In addition to defending and re-

inforcing its position in mature markets, the aim

is to advance positions in emerging markets, pri-

marily in regions where SCA already has repre-

sentation. The rapidly growing BRICIT* countries

have also been assigned high priority. Although

growth will mainly take place organically, in old

and new segments, it will also occur through

acquisitions.

Through strong global and regional market

positions and brands, innovativeness and effi-

cient production, SCA is well positioned to lever-

age the growth potential existing in both mature

and emerging markets. In existing markets, SCA

aims to grow through such activities as broaden-

ing the offering of product categories, product

ranges and services.

SCA’s market positions

EuropeNorth

America Global

Incontinence care 1 3 1

Baby diapers 3 – 4

Feminine care 3 – 5

Consumer tissue 1 – 3

AFH tissue 1 3 3

Packaging 2

Publication papers 6

Solid-wood products 3SCA is Europe’s largest private forest owner.

*Brazil, Russia, India, China, Indonesia, TurkeySCA Annual Report 20106

Introduction | Strategy

Page 11: SCA Annual Report 2010 En

A strong profile and position in sustainability for

the Group’s product brands and the SCA brand

itself results in enhanced competitiveness and

growth. Read more about SCA’s sustainability

work on pages 50–53 and in SCA’s Sustainability

Report at www.sca.com.

Hygiene business

With sales of hygiene products amounting to

SEK 65bn, or about 60% of the Group’s total

sales, SCA is currently the world’s third-largest

hygiene company.

The growth potential for hygiene products

remains favourable and the main drivers are

global population growth, an aging population,

increased market penetration and higher dispos-

able incomes. In addition, customers and con-

sumers in mature markets are becoming more

aware of, and demand more from, comfort and

sustainability. A higher standard of living and

increased consumption of hygiene products are

strongly interconnected. SCA prioritises growth

in hygiene products. SCA’s annual organic growth

target for Personal Care products is 5–7%, while

the target for Tissue is 3–4%. In the hygiene

business, emerging markets account for about

25% of sales and the ambition is to increase this

share.

As the share of sales of hygiene products in

the Group grows, the sensitivity to economic

fluctuations decreases, thus ensuring long-term

stable profitability, growth and value creation.

Packaging and Forest Products

For Packaging and Forest Products, the target is

to grow in pace with the market. It is crucial to

continue the work focused on efficiency and inno-

vation and to increase the share of value-added

products. Activities aimed at developing the value

chain and making it more efficient and sustain-

able and identifying new product areas in close

cooperation with customers are also prioritised

in order to increase competitiveness.

Strategic priorities To improve profitability, increase growth and achieve the Group’s financial target for return on capital employed, SCA has established the following

prioritised areas:

Costs and cash flow · Capital efficiency · Innovation · Growth

Strategic priorities per business area:

The Group’s financial target: return on capital employed of 13%In 2010, return on capital employed, excluding restructuring costs, was 9%

• Carbon dioxide from fossil fuels shall be reduced by 20% between 2005

and 2020.

• Responsible use of wood raw material.

• Reduce water usage by 15% and the organic content of wastewater by

30% between 2005 and 2010. 2010 was the final year of the target and

work is under way to establish new targets.

• Compliance with the Code of Conduct throughout the Group.

Read more about the sustainability targets on pages 52–53.

To sustainably develop, produce and market increasingly value-added

products and serv ices within Personal Care, Tissue, Packaging and Forest

Products. SCA’s products simplify the everyday lives of hundreds of mil-

lions of people around the globe. They also generate strong cash flows that

enable favourable divi dend growth and increased value for the SCA share.

Sustainability targetsBusiness concept

Personal Care Tissue Packaging Forest Products

• Highergrowthinprioritisedemerg-ing markets

• AdvanceSCA’sleadingpositioninincontinence care under the TENA brand

• Increasethelaunchrateofinnova-tions

• Enhancetheefficiencyofproduc-tion and distribution

• Continuedfocusoninnovation• Greaterpresenceinemerging

markets• Optimisationofproductionand

distribution• IncreasegrowthinAFHunder

the Tork brand• Continueddevelopmentofthe

brand platform within consumer tissue in Europe

• Raisetheshareofcompletepack-aging solutions

• Leaddevelopmentinthepackag-ing market through innovation and product development

• Continuedrationalisationandeffi-ciency enhancement

• ContinuedfocusonEurope

• Shifttowardmorevalue-addedandcustomised products within publica-tion papers and solid-wood products

• Utilisethepotentialforenergy production

• Continuedproductivity improvements

• Greaterrawmaterialintegration• Gradualexpansionofthepulp

operation

46 % 58 %

2000 2010

Hygiene business

Packaging and Forest Products

Increased share for Hygiene business

SCA Annual Report 2010 7

Strategy | Introduction

Page 12: SCA Annual Report 2010 En

Dividend per share

Required rate of return in operating activitiesSCA measures and evaluates profitability in

oper ating activities by monitoring return on capi-

tal employed (ROCE). The target for ROCE in the

Group has been set at 13% and varies among

the business areas based on their different

circum stances.

Required rate of return on investmentsSCA’s required rate of return on expansion invest-

ments shall satisfy the return requirement

assigned to each of the business areas. The

required rate of return is determined by the capi-

tal market’s estimated return requirement on an

investment in SCA shares and current long-term

interest rates. The return requirement, the

weighted average cost of capital (WACC), is

based on SCA’s capital structure from a debt/

equity ratio of 0.70.

Dividend policySCA aims to provide long-term stable and rising

dividends. Over a business cycle, approximately

one-third of cash flow from current operations

(after interest expenses and tax) is normally allo-

cated to dividends. If, in the long term, cash flow

from current operations exceeds what the com-

pany can place in profitable expansion invest-

ments, the surplus shall be used to amortise

loans or is returned to shareholders through

higher dividends or share repurchases. The Board

resolved to propose a dividend of SEK 4.00 for

the 2010 financial year, corresponding to an

increase of 8% compared with 2009. Accord-

ingly, dividends have risen by an average of 4.5%

per year over the past decade.

Capital structureSCA’s debt/equity ratio, measured as net debt in

relation to recognised equity, was 0.51 at 31

December 2010. This was lower than SCA’s long-

term target of 0.70. The debt/equity ratio target of

0.70 takes into account SCA’s business risk, the

composition of the product portfolio and its sub-

stantial forest holdings. Periodically, the debt/

equity ratio may deviate from the target. Over the

past decade, the debt/equity ratio has varied

between 0.44 and 0.70. SCA has a credit rating

for long-term borrowing of Baa1/BBB+ and short-

term borrowing of P2/A2 from Moody’s and Stan-

dard & Poor’s, respectively, and a short-term

credit rating of K1 in Sweden from Standard &

Poor’s. During the autumn, Standard & Poor’s

changed its outlook for SCA from negative to sta-

ble. For more detailed information about SCA’s

financial risk management, see pages 48–49.

Incentive programmeSCA’s incentive programme is designed to con-

tribute to the creation of share holder value. The

programme for senior execu tives has two com-

ponents: achievement of cash-flow, growth and

earnings targets, which are determined annually

by the Board, and the performance of SCA shares

compared with an index consisting of SCA’s larg-

est global competitors. For more information

about the structure of the programme, see Note 6

(Personnel and Board costs), on page 71.

Key ratios

2010 2009 2008

Operating profit

Margin1) (%) 8.8 8.7 7.7

Cash flow from current operations

Outcome (SEK bn) 7.4 11.5 3.8

Return metrics

Return on capital employed1) (%) 9.1 8.6 8.1

Return on equity1) (%) 9.4 8.8 8.7

Financial metrics

Debt/equity ratio (multiple) 0.5 0.6 0.7

Market adjusted debt/equity ratio (multiple) 0.5 0.6 1.0

Debt payment capacity (%) 35 31 261) Excluding items affecting comparability.

Return and capital structure

Strategic investments, acquisitions and divestments

Personal Care Divestments

Tissue

Packaging

Forest Products

SEKm

0

1,000

2,000

3,000

4,000

5,000

6,000

20102009200820072006–3,000

–2,000

–1,000

SEK

0

1

2

3

4

5

-10-09-08-07-06-05-04-03-02-01

Average cumulative growth: 4.5%

Net debt Debt payment capacity

SEKm %

0

10,000

20,000

30,000

40,000

50,000

201020092008200720060

10

20

30

40

50

Net debt and debt payment capacity

SCA Annual Report 20108

Introduction | Strategy

Page 13: SCA Annual Report 2010 En

n SCA Group

Operations and structure ...................................... 10

Acquisitions, investments and divestments 11

Other Group information ........................................ 12

Sales and earnings .................................................. 13

Operating cash flow ................................................ 14

Financial position ...................................................... 15

Innovations ................................................................... 16

Brands ............................................................................. 18

n Business areas

Personal Care ............................................................. 20

Tissue .............................................................................. 24

Packaging ...................................................................... 28

Forest Products ......................................................... 32

n Responsibility and Governance

Corporate Governance ........................................... 36

Board of Directors and auditors ........................ 42

Corporate Senior Management Team ............ 43

Risk and risk management .................................. 44

Sustainability ................................................................ 50

n Financial statements

Contents ......................................................................... 54

Consolidated income statement ........................ 55

Consolidated statement of

comprehensive income ......................................... 55

Consolidated statement of

changes in equity ...................................................... 56

Consolidated operating

cash flow statement ................................................. 56

Consolidated cash flow statement ................... 57

Correlation between consolidated cash flow statement and operating cash flow statement ................................................. 58

Consolidated balance sheet ................................ 59

Financial statements, Parent Company ......... 60

Notes ................................................................................ 62

Adoption of the annual accounts ....................... 95

Proposed distribution of earnings ..................... 96

Audit report ................................................................... 97

Board of Directors’ Report

Board of Directors’ Report | SCA Annual Report 2010 9

Page 14: SCA Annual Report 2010 En

Operations and structure

Although Europe is SCA’s main market, the Group

also holds strong positions in North America,

Latin America and Asia Pacific. Expansion takes

place through organic growth and acquisitions,

primarily within Personal Care and Tissue. SCA

owns approximately 2.6 million hectares of forest

land, which guarantees just under half of the

Group’s timber supplies and enables efficient raw

material integration and effective cost control.

SCA conducts extensive sawmill operations as a

natural complement to the forest operations.

OrganisationSCA consists of four business areas – Personal

Care, Tissue, Packaging and Forest Products.

The business areas are organised in six business

groups. The SCA Personal Care Europe business

group manufactures and sells personal care prod-

ucts in Europe and Africa. SCA Tissue Europe’s

operations involve manufacture and sales of con-

sumer and AFH tissue in Europe. Also located in

Europe is the SCA Packaging Europe business

group, which manufactures and sells packaging

solutions, and the SCA Forest Prod ucts business

group, which manufactures publi cation papers,

pulp, timber and solid-wood prod ucts. The SCA

Asia Pacific and SCA Americas business groups

include tissue and personal care products.

The Global Hygiene Category (GHC) is a unit

that creates the potential for global growth in the

hygiene categories. GHC shall focus on long-

term strategies for all segments in tissue and per-

sonal care. To capitalise on synergies among the

business areas, GHC is responsible for develop-

ing customer and consumer insight, innovation,

technology processes and the brand portfolio.

Significant events during the yearSCA’s Asian packaging operation, which gener-

ated annual sales of approximately USD 250m,

was divested. The sales price was USD 200m.

The acquisition of Copamex’s baby diaper

operations in Mexico and Central America

strengthened SCA’s position in Latin America and

supplemented the portfolio of hygiene products

in the region.

The production of tissue commenced at the

new facility in Mexico, located close to Mexico

City, which improved the offering to consumers

and competitiveness in the region.

SCA opened a facility for personal care prod-

ucts south of Moscow in Russia. The plant pro-

duces baby diapers and will also commence pro-

duction of incontinence care products in 2011.

SCA is thus able to meet escalating demand for

hygiene products in Russia.

The restructuring programme in the Packag-

ing business area was concluded during the year.

By year-end 2010, the entire projected annual

savings of slightly more than SEK 1bn had been

achieved on an annual basis. Furthermore, a

decision was made to implement an efficiency

improvement project in the European baby diaper

operations. The operations were restructured

and one of the decisions made was to close the

Personal Care plant in Linselles, France. In addi-

tion, an efficiency improvement project in Forest

Products at Ortviken paper mill in Sweden was

initiated.

SCA and Persson Invest formed a jointly

owned sawmill company in Sweden, Gällö Timber

AB, in June 2010.

SCA is a global hygiene and paper company that develops, produces and markets personal care products, tis-sue, packaging, publication papers and solid-wood products. SCA offers products that make everyday life for people considerably easier. Based on customer and consumer needs, new and more value-added products are constantly being developed for consumers, institutions, industry and the retail trade. SCA’s products largely consist of renewable and recyclable materials.

* GHC’s task is to manage innovation, brand strategy and technology for all of the Group’s hygiene operations.

SCA Asia Pacific

SCA Americas

SCA Tissue Europe

SCA Personal Care Europe

SCA Forest Products

SCA Packaging Europe

Global Hygiene Category (GHC)*

President and CEO

Corporate staffs

Organisation

SCA Annual Report 2010 | Board of Directors’ Report10

SCA Group | Operations and structure

Page 15: SCA Annual Report 2010 En

Acquisitions, investments and divestments

Divestment of Asian packaging operationSCA divested its Asian packaging operation dur-

ing the second quarter. The sales price amounted

to USD 200m, which was paid in cash on 30 June

2010. The Asian packaging operation reported

sales of approximately USD 250m in 2009 and

had approximately 4,200 employees. The trans-

action resulted in neither a capital gain nor a capi-

tal loss. The operation was deconsolidated on 30

April 2010. Following the divestment, SCA will

direct its resources in Asia on growth in hygiene

products.

New tissue plant in Mexico commissionedDuring the final quarter of the year, production

started at a new tissue facility in Mexico that will

improve the offering to customers and boost

competitiveness and profitability in the region.

The plant is situated in close proximity to the key

market of Mexico City and the surrounding area.

The tissue machine has an annual capacity of

60,000 tonnes. The project also comprises a

recycled fibre plant, a converting hall with three

lines for toilet paper as well as a distribution cen-

tre. The investment amounted to approximately

USD 210m. The Mexican tissue market is highly

consolidated and SCA is currently the second-

largest player with a market share of 18%. Pro-

ducer brands, including SCA’s own brands, are

totally dominant in the Mexican convenience

goods market. Market growth in Mexico has been

4–5% annually over the past five years and SCA’s

assessment is that the market will grow by

approximately the same figure in the immediate

years ahead.

Strengthened presence in Mexico through purchase of baby diaper businessIn October 2010, SCA completed the approxi-

mately SEK 360m purchase of the Copamex baby

diaper business in Mexico and Central America.

The company produces the baby diaper brands

Dry Kids for the Mexican market and Tessy

Babies for consumers in Central America. Annual

sales in the acquired business amounted to about

USD 60m. Copamex holds the number three

position in baby diapers in Mexico. SCA already

commands several strong regional market posi-

tions in hygiene products, including incontinence

care, feminine care and tissue. The acquisition

strengthens SCA’s presence in Latin America,

and adds to SCA’s current portfolio of hygiene

products in the region.

New SCA facility to meet Russian demand for hygiene productsIn September 2010, SCA inaugurated a personal

care plant in Russia. The facility is located in

Veniov, in the Tula Region south of Moscow. The

investment was valued at approximately EUR

85m between 2008 and 2010 and is the first of its

kind in local production of baby diapers in Russia

and the CIS region. The plant will manufacture

Libero baby diapers and TENA incontinence care

products to meet the growing market demand for

hygiene products in Russia. In addition to meet-

ing customer requirements more rapidly, SCA will

decrease its import of products from its plants in

Poland and the Netherlands, thereby reducing

high costs for freight and duties. The new facility

supplements the tissue manufacturing in

Sovetsk, opened in February 2010, in the same

region. Tissue is sold under the brands Tork and

Zewa and is also manufactured in Svetorgorsk,

close to St. Petersburg in Russia. SCA anticipates

healthy growth in all categories in the hygiene

segment in Russia and CIS region.

Jointly-owned sawmill company in Sweden, Gällö Timber ABSCA and Persson Invest formed a jointly-owned

sawmill company in Sweden, Gällö Timber AB, in

June 2010. The new company is owned jointly by

Persson Invest and encompasses Persson

Invest’s two sawmills and SCA’s sawmill in the

region. With the products from Gällö Timber, SCA

can offer higher volumes of solid-wood products,

a total of more than 2 million m3, which will

enhance SCA’s competitiveness in Europe and

other markets. Gällö Timber AB adds net sales of

approximately SEK 500m on a yearly basis to

SCA and annual volume of approximately

230,000 m3 of solid-wood products. The joint

venture required an investment of SEK 65m.

Expansion of Tunadal sawmill in SwedenIn June, SCA decided to invest SEK 250m in the

Tunadal sawmill in Sundsvall, Sweden. The

investment was primarily made in a new log sort-

ing line and will yield an annual increase in pro-

duction of 140,000 m3 of spruce wood products.

The investment enhances competitiveness and

increases SCA’s share of value-added and cus-

tomised products, which is necessary for com-

peting with the best spruce sawmills in Europe.

The new log sorting line is scheduled to be put

into operation in July 2011.

Board of Directors’ Report | SCA Annual Report 2010 11

Acquisitions, investments and divestments | SCA Group

Page 16: SCA Annual Report 2010 En

Other Group information

Parent CompanyThe Group’s Parent Company, Svenska Cellulosa

Aktiebolaget SCA (publ), owns most of the forest

land and other real estate relating to forestry

operations, and grants felling rights for standing

forest to the subsidiary SCA Skog AB. The Parent

Company is otherwise the owner of a number of

business group companies and per forms Group-

wide management and administra tive functions.

In 2010, the Parent Company rec-ognised operat-

ing income of SEK 185m (196) and reported a

profit before appropriations and tax of SEK

1,164m (33,351). During the year, the Par ent

Company’s net investments and divestments in

shares and participations in companies outside

SCA amounted to SEK 0m (0). Investments in

property and plant totalled SEK 133m (80) during

the year. Cash and cash equivalents at year-end

were SEK 0m (0).

Research and development (R&D)During the year, research and development costs

amounted to SEK 713m (738), which is equivalent

to 0.7% of consolidated net sales. Research and

development is conducted both centrally and

locally in the various business groups. The central

activities are carried out in the form of R&D in the

fields of materials and technology, while the local

units work with product development, often in

direct cooperation with customers.

Holdings of treasury sharesSCA implemented a directed cash issue of a total

of 1,800,000 shares in 2001. These shares were

subsequently acquired by SCA to be used for

transfer to senior executives and key individuals

under the employee stock option programme.

The programme ended in 2009.

Following the share split in 2007 and transfer

of the shares under the concluded programme,

the company holds a total of 2,767,605 treasury

shares.

Distribution of sharesDuring the year, 1,627,075 Class A shares were

converted into Class B shares. The proportion of

Class A shares was 14.4% at year-end. The num-

ber of treasury shares was 2,767,605.

DividendThe Board of Directors proposes that the divi-

dend be raised by 8.1% to SEK 4.00 (3.70) per

share, representing 51% of earnings per share in

2010 and 38% of cash flow from current opera-

tions per share. The dividend is expected to total

approximately SEK 2,809m (2,599). Accordingly,

dividend growth in the most recent ten-year

period has amounted to 4.5%. The Board’s

assessment is that the pro posed dividend will

provide the Group with the scope to fulfil its obli-

gations and make the required investments. The

record date for entitle ment to receive dividends

is proposed as 12 April 2011.

Environmental impact in SwedenSCA conducts 16 operations for which a permit is

required and six that are under obligation to sub-

mit reports in Sweden. Operations for which per-

mits are required or reporting is mandatory

account for 14% (12) of consolidated net sales.

Six permits relate to the manufacture of pulp

and paper. These operations impact the environ-

ment through emissions to air and water, solid

waste and noise. Nine permits relate to the pro-

duction of solid-wood and value-added products,

and biofuels. These operations affect the environ-

ment through emissions to air and water, and

noise. One permit relates to the manufacture of

fuel pellets. This operation affects the environ-

ment through emissions to air and water, as well

as noise.

The operations required to submit reports

comprise the production of corrugated board

(three plants), EPS packaging (two plants), and

display packaging (one plant).

The production of corrugated board packag-

ing, EPS packaging and display packaging

impacts the external environment through emis-

sions to air and water and by generating solid

waste.

Guidelines for remuneration of senior executivesThe Board has decided to propose to the 2011

Annual General Meeting the following unchanged

guidelines for determining salaries and other

remuneration for senior executives to apply for

the period following the Annual General Meeting.

“Remuneration to the CEO and other senior exec-

utives will be a fixed amount, possible varia ble

remuneration, additional benefits and pension.

Other senior executives include the Executive

Vice President, Business Group Managers and

equiva lent, and Central Staff Managers. The total

remu neration is to correspond to market practice

and be competitive in the senior executive’s field

of profession. Fixed and variable remuneration

are to be linked to the executive’s responsibility

and authority. For the CEO, as well as for other

senior executives, the variable remuneration is to

be lim ited and linked to the fixed remuneration.

The vari able remuneration is to be based on the

outcome of predetermined objectives and, as far

as possi ble, be linked to the increase of value of

the SCA share, from which the shareholders

benefit. Pro grammes for variable remuneration

should be for mulated so that the Board, if excep-

tional financial circumstances prevail, has the

possibility to limit, or refrain from, payment of

variable remuneration if such an action is con-

sidered reasonable and in compliance with the

company’s responsibility to shareholders,

employees and other stakeholders.

In the event of termination of employment,

the notice period should normally be two years

should the termination be initiated by the com-

pany, and one year, when initiated by the senior

executive. Severance pay should not exist.

Pension benefits are to be either defined ben-

efit or defined contribution plans, or a combin-

ation of both, and entitle the senior executive to

pension from the age of 60, at the earliest. To earn

the pension bene fits, the period of employment

must be long term, at present 20 years. When

resigning before the age providing entitlement to

pension, the senior execu tive will receive a paid-

up pension policy from the age of 60. Variable

remuneration is not pensionable income. Matters

of remuneration to senior executives are to be

dealt with by the Remunera tion Committee and,

as regards the President, be resolved by the

Board of Directors.”

The Board’s proposal concurs with the guide-

lines adopted by the 2010 Annual General Meet-

ing. For information concerning the company’s

application of these guidelines and information on

the company’s expenses, see Note 6 on page 71

of this Annual Report.

SCA Annual Report 2010 | Board of Directors’ Report12

SCA Group | Other Group information

Page 17: SCA Annual Report 2010 En

Operating profit and operating margin

Operating profit Operating margin

SEKm %

0

2,000

4,000

6,000

8,000

10,000

201020092008200720060

2

4

6

8

10

Excluding items affecting comparability.

Earnings per share after dilution

SEK

0

2

4

6

8

10

20102009200820072006

Excluding items affecting comparability.

Net sales, share of Group

Tissue, 36%

Packaging, 27%

Forest Products, 15%

Personal Care, 22%

Summary income statement

SEKm 2010 2009 2008

Net sales 109,142 110,857 110,449

Gross profit 1) 24,618 26,113 22,259

Operating profit 2) 9,608 9,648 8,554

Financial items –1,116 –1,644 –2,317

Profit before tax 2) 8,492 8,004 6,237

Tax 2) –2,211 –2,098 –639

Profit for the year 2) 6,281 5,906 5,598

1) In figures for 2008, reclassification took place between Cost of goods sold and Sales, general and administration.

2) Excluding items affecting comparability in 2010 amounting to an expense of SEK 931m before tax and SEK 689m after tax and an expense in 2009 totalling SEK 1,458m before tax and SEK 1,076m after tax. Excluding items affecting comparability.

Increase in profit Operating margin:before tax:

6% 9%

Sales and earnings

Operating profit, excluding restructuring costs, was level with the preceding year and amounted to SEK 9,608m (9,648). Higher prices and volumes along with cost savings offset sharply higher raw material costs and negative exchange rate effects.

Net sales Net sales decreased slightly to SEK 109,142m,

compared with SEK 110,857m in the preceding

year. Exchange rate effects reduced consolidated

net sales by 6%. Sales for Personal Care and Tis-

sue declined by 3% and 4% respectively, primar-

ily due to exchange rate effects, while rising

prices and volumes contributed to an increase in

sales. The sales increase in emerging markets

was 10% for Personal Care and 6% for Tissue.

Packaging increased its sales by 4% as a result of

higher volumes and prices, which more than off-

set the negative exchange rate effects, closures

and divested operations. Net sales for Forest

Products rose due to higher prices for pulp and

solid-wood products as well as acquisitions.

EarningsOperating profit, excluding restructuring costs of

SEK 931m (1,458), was level with the preceding

year and amounted to SEK 9,608m (9,648). Profit

for Personal Care and Tissue declined by 10%

and 23%, respectively. Packaging increased its

profit to SEK 1,577m (413) and Forest Products’

profit fell 2%. Higher prices and volumes along

with cost savings and lower energy costs

increased profit, while sharply rising raw material

costs and negative exchange rate effects

reduced profit.

Financial items amounted to an expense of

SEK 1,116m (expense: 1,644). The decrease is

attributable to lower interest rates and lower aver-

age net debt. Profit before tax, excluding restruc-

turing costs, improved by SEK 488m and

amounted to SEK 8,492m (8,004). The average

tax rate for the year was 26%. Profit for the

period, excluding restructuring costs of SEK

689m (1,076) after tax, amounted to SEK 6,281m

(5,906). Earnings per share rose to SEK 8.89

(8.32), excluding restructuring costs, and to SEK

7.90 (6.78) including restructuring costs.

Key figuresThe Group’s gross margin, excluding restructur ing

costs, amounted to 22.6%, compared with 23.6%

in the preceding year, and the operating margin

was 8.8%, compared with 8.7% in 2009. Return

on capital employed, excluding restructur ing

costs, remained unchanged at 9%, and return on

equity was also unchanged at 9% compared with

the preceding year. The interest coverage ratio

rose to 7.8, compared with 5.0 in the preceding

year.

Board of Directors’ Report | SCA Annual Report 2010 13

Sales and earnings | SCA Group

Page 18: SCA Annual Report 2010 En

Operating cash flow, share of the Group

Tissue, 39%

Packaging, 11%

Forest Products, 18%

Personal Care, 32%

Operating cash flow by business area

Personal Care Packaging

Tissue

SEKm

0

1,000

2,000

3,000

4,000

5,000

6,000

20102009200820072006

Forest Products

Cash flow, Group

Divestments Cash flow before dividend

Cash flow from current operations

Strategic capital expenditures

Company acquisitions

Strategic restructuring costs

SEKm

0

2,000

4,000

6,000

8,000

10,000

12,000

20102009200820072006–6,000

–4,000

–2,000

0

Capital expenditures

Strategic capital expenditures Depreciation according to plan

Current capital expenditures, net

SEKm

0

2,000

4,000

6,000

8,000

10,000

20102009200820072006

Summary operating cash flow statement

SEKm 2010 2009 2008

Operating cash surplus 15,097 15,733 13,869

Change in working capital –1,042 3,307 –19

Current capital expenditures, net –3,647 –4,037 –5,353

Restructuring costs, etc. –653 –870 –684

Operating cash flow 9,755 14,133 7,813

Financial items –1,116 –1,644 –2,317

Income taxes paid, etc. –1,240 –999 –1,686

Cash flow from current operations 7,399 11,490 3,810

Strategic capital expenditures, net –1,623 –3,007 –3,733

Cash flow before dividend 5,776 8,483 77

Operating cash flow

Operating cash surplus declined by 4% to SEK

15,097m (15,733). Working capital increased

mainly as a result of higher inventory values

resulting from higher raw material prices. The

change was attributable to all business areas.

Working capital in proportion to net sales was 8%

(7). Current capital expenditures, which declined

SEK 390m during the year, amounted to SEK

3,647m (4,037), corresponding to 3% of net sales.

Operating cash flow fell to SEK 9,755m, com-

pared with SEK 14,133m in the preceding year.

Financial items declined by SEK 528m to an

expense of SEK 1,116m (expense: 1,644). The

decline was an effect of lower interest rates and

lower average net debt. Tax payments totalled

SEK 1,255m (1,003). Cash flow from current oper-

ations amounted to SEK 7,399m, compared with

SEK 11,490m in the preceding year.

Strategic capital expenditures made to

strengthen organic growth amounted to SEK

2,427m (3,031). The year’s expense for strategic

capital expenditures pertained primarily to invest-

ments in Tissue in Mexico, Personal Care in Rus-

sia and Packaging in Germany.

Net debt decreased by SEK 6,024m during the

year, to SEK 34,406m at year-end. Net cash flow

reduced net debt by SEK 3,119m. The fair value

measurement of pension assets, pension obliga-

tions and financial instruments reduced net debt

by SEK 695m. Exchange rate movements attrib-

utable to the strengthening of the Swedish krona

decreased net debt by SEK 2,210m.

The debt/equity ratio was 0.51 (0.60). The

debt payment capacity improved to 35% (31).

A high level of control of the operating cash flow is an integral part of SCA’s long-term competitiveness strategy. Cash flow from current operations amounted to SEK 7,399m (11,490). The decline is primarily attributable to changes in tied up working capital.

SCA Annual Report 2010 | Board of Directors’ Report14

SCA Group | Operating cash flow

Page 19: SCA Annual Report 2010 En

Capital employed, share of Group

Tissue, 36%

Packaging, 22%

Forest Products, 31%

Personal Care, 11%

Return on capital employed and equityDebt/equity ratio and debt payment capacity

Debt/equity ratio Debt payment capacity

multiple %

0.3

0.4

0.5

0.6

0.7

0.8

2010200920082007200620

30

40

50

60

70

Return on capital employed Return on equity

Excluding items affecting comparability.

%

0

2

4

6

8

10

12

20102009200820072006

Consolidated balance sheet

SEKm 2010 2009 2008

Intangible assets 20,958 22,551 23,160

Property, plant and equipment 56,167 61,404 63,700

Biological assets 26,069 25,397 24,711

Other non-current assets 5,715 4,455 4,794

Total non-current assets 108,909 113,807 116,365

Current assets 34,069 36,052 42,603

Total assets 142,978 149,859 158,968

Equity 67,821 67,906 67,252

Non-current liabilities 38,158 44,356 53,008

Current liabilities 36,999 37,597 38,708

Total equity and liabilities 142,978 149,859 158,968

Working capital 8,899 8,126 11,818

Capital employed 102,227 108,336 114,254

Net debt 34,406 40,430 47,002

Consolidated capital employed by currency, SEKm

2010 % 2009 % 2008 %

EUR 31,381 31 35,139 32 41,940 37

SEK 35,141 34 35,745 33 33,623 29

USD 7,639 8 8,339 8 9,298 8

GBP 7,322 7 8,182 8 7,911 7

Other 20,744 20 20,931 19 21,482 19

Total 102,227 100 108,336 100 114,254 100

ROCE:

9%Excluding items affecting comparability

Working capital1):

8%1) Working capital as a percen-

tage of net sales

Financial position

Assets and capital employedThe Group’s total assets declined 5% compared

with the preceding year and amounted to SEK

142,978m (149,859). Non-current assets

de creased by SEK 4,898m, compared with the

preceding year, to SEK 108,909m, of which prop-

erty, plant and equipment fell SEK 5,237m to SEK

56,167m and intangible assets declined SEK

1,593m to SEK 20,958m. Property, plant and

equipment declined SEK 4,401m, mainly due to

exchange rate movements, and SEK 913m as a

result of the divestment of the Asian packaging

operation. Current and strategic capital expendi-

tures in property, plant and equipment amounted

to SEK 6,254m and depreciation for the year to

SEK 5,999m. Intangible assets declined SEK

1,510m mainly due to exchange rate movements.

Current assets decreased by SEK 1,983m to

SEK 34,069m (36,052) primarily as a result of

exchange rate effects and a decline in cash and

cash equivalents, while inventories rose due to

higher raw material costs. Working capital

amounted to SEK 8,899m (8,126). Capital

employed was 6% lower than in the preceding

year and totalled SEK 102,227m (108,336). A

distribution of capital employed by currency is

shown in the table on the right.

The value in Swedish krona of the Group’s for-

eign net assets at year-end was SEK 76,596m

(78,080). The decline is mainly due to exchange

rate effects.

EquityConsolidated equity amounted to SEK 67,821m

(67,906) at year-end. Net profit for the period

increased equity by SEK 5,592m (4,830), while

shareholder dividends reduced equity by SEK

2,657m (2,489). Equity increased by SEK 368m

after tax through remeasurements of the net pen-

sion liability to market value. The remeasurement

of financial instruments to market value increased

equity by SEK 691m after tax. Exchange rate

movements, including the effect of hedges of

net foreign investments, decreased equity by

SEK 4,079m.

FinancingAt year-end, the Group’s interest-bearing gross

debt amounted to SEK 36,506m (44,104). The

average maturity period was 2.9 years at the

same date. The decrease in gross debt was

largely due to the positive cash flow and effects

of exchange rate movements.

Net debt at year-end amounted to SEK

34,406m, compared with SEK 40,430m at the

beginning of the year. The net cash flow was

impacted in the amount of SEK 3,119m. Further-

more, net debt declined by SEK 695m due to the

fair value measurement of pension assets and

obligations, as well as the fair value measurement

of financial instruments. Exchange rate move-

ments resulting from the strengthening of the

Swedish krona reduced net debt by SEK 2,210m.

Key figuresThe debt/equity ratio was 0.51 (0.60) and the

visible equity/assets ratio was 47% (45). Return

on capital employed (ROCE) and on equity (ROE),

excluding restructuring costs, amounted to 9%

(9) and 9% (9), respectively. The capital turnover

rate was 1.04 (0.99). At year-end, working capital

amounted to 8% (7) of net sales.

Board of Directors’ Report | SCA Annual Report 2010 15

Financial position | SCA Group

Page 20: SCA Annual Report 2010 En

Innovation for profitable growth

Innovation is a means of developing and differentiating SCA’s products and services, retaining and strengthen-ing market positions, building stronger brands and driving growth.

SCA has a long history of successful innovations.

Successful innovation activities lead to differenti-

ation and increased added value for SCA’s cus-

tomers and consumers, thereby contributing to

strong, market-leading positions and brands, and

creating value for SCA’s shareholders and stake-

holders.

A number of interactive driving forces create

the need for continuous innovation activities. In

general, SCA works with innovations in order to:

• Meetchangingdemandsandrequirements

among customers and consumers.

• Createlong-term,profitabledifferentiation

vis-à-vis competitors.

• Createvaluebycombininghighercustomer

and consumer value with reduced manufactur-

ing costs.

• Generatinggrowthinsales,earningsandinthe

number of customers and consumers.

Innovation is a multifaceted, complex framework

of activities that occur in various forms. SCA

definesinnovationsandtheirpotentialmarket

impact on the basis of the following three levels:

• Upgrade:Anupgradeinnovationisamodifica-

tion of an existing offering, and is always nec-

essarytoremaincompetitive.Upgradeisthe

most common form of innovation across all

companies.

• Newgeneration:ForSCA,newgenerationin-

novations occur when a completely new offer-

ing for the company is launched for an existing

customer or consumer segment.

• Breakthrough:Breakthroughinnovations,

which are relatively rare in most industries,

are new growth platforms that completely

transform an entire industry and create new

customer or consumer segments or provide

an entirely new offering to existing customer

segments.

SCA’s general innovation processSCA’s general innovation process is deeply

embeddedintheGroup’sstrategyandbusiness

model. It represents a fundamental framework for

concept generation and innovation based on

trends in the business environment, insight into

customerandconsumerrequirementsandtech-

nological progress. The innovation-related pro-

cesses are continuously honed and streamlined.

InnovationactivitiesintheGroup’sfourbusi-

ness areas rest on three basic building blocks:

customer and consumer insight, new technology

and business model.

InnovationscanstartanywhereintheGroup

or in cooperation with external partners in a net-

work. Experience proves that an innovation

becomes successful only when there is coher-

ence between customer and consumer insight,

new technology and the business model.

The illustration below shows the manner in

which the various building blocks interact in the

innovation process. This type of model is used in

SCA’s most innovative business areas: Personal

Care and Tissue, and in a similar manner in Pack-

agingandForestProducts.

The hygiene business (Personal Care and

Tissue) use the same model for evaluating inno-

vations in the various phases of the innovation

process: concept, development and launch. This

enables the operations to estimate and monitor

the value of innovations when they are launched

SCA’s general innovation process:

SCA’s general innovation process represents a fundamental framework for concept generation and inno-vation based on trends in the business environment, insight into customer and consumer requirements and technological advances, at the same time as it is deeply embedded in the Group’s strategy and busi-ness model. Through well-defined process steps, creative and valuable ideas are objectively and rapidly developed toward the launch of value-generating and profitable products and services in the market.

Technologicalinnovation

Consumerinsight

Businessmodel

STRATEGY

CONCEPT DEVELOPMENT LAUNCH

SCA Annual Report 2010 | Board of Directors’ Report16

SCA Group | Innovation

Page 21: SCA Annual Report 2010 En

in the market. The innovations that do not make

sufficientprogressintheprocesscanbeelimi-

nated at an early stage and resources effectively

reprioritised. A shared process and follow-up of

innovations launched in the market enable the

focus to be directed to the products that generate

the greatest value.

The shared model also generates cost syner-

gies and enables effective resource allocation.

Open innovationSCA also applies the open innovation model.

Through collaboration with external and internal

resourcesintheinnovationprocess,theGroup

optimises access to expertise and resources,

thus accelerating development processes and

cutting costs. SCA primarily uses open innovation

for patent exchange, and partnership with suppli-

ers and selected companies and by utilising inno-

vation brokers.

SCA’s patenting activitiesThe number of patent applications is directly

related to the innovation work and, in 2010, SCA

submitted applications for 64 patents. Patenting

activities are pursued in a central support organi-

sation with a global focus. Some 30 employees

work at SCA’s patent department who, together

with the business organisation, drive and create

value from intellectual property rights that is

directlylinkedtoSCA’sgrowthandprofitability.

The patenting activities take the form of industry

intelligence and ensuring appropriate protection

for SCA’s product solutions and innovations in

order to create and maintain a valuable patent

portfolio.

Innovation in hygiene businessInnovationinthehygienesegmentisaprerequi-

site for retaining and strengthening market

shares, building strong brands and creating new

values for customers and consumers. A faster

innovation and launch pace are two focus areas.

Read more about innovation activities in Per-

sonal Care on page 21 and in Tissue on page 25.

Innovation in PackagingSCA’s Packaging business area has innovation

expertise in many areas throughout the organisa-

tion. Packaging seeks to develop optimal pack-

aging solutions with regard to function, design,

logistics, transport, and environmental footprint.

Another innovation area is strengthening retail

points of sale and reducing the complexity of the

industry’s packaging solutions.

Read more about innovation activities in

Packaging on page 29.

Innovation in Forest ProductsInnovationsareatoolusedbytheForestProd-

ucts business area to further strengthen its com-

petitiveness.EffortsinthisrespectpermitForest

Products to move up the value chain and produce

products and solutions with higher value and

margins.Bythismeans,SCAdifferentiatesitself

from the rest of the industry, while also meeting

therequirementsofbusinesspartnersandcus-

tomers.

Read more about innovation activities in

ForestProductsonpage33.

TENA Ultra ThinsDuring the year, TENA launched a new ultra-thin incontinence pad, featuring improved com-fort and the same safety and odour control of a thicker pad.

Tork Xpressnap CaféIn response to the demands of the growing café market for a customised solution, SCA has launched a smaller model of the Tork Xpressnap napkin dispenser, which delivers only one napkin at a time. This reduces costs for customers and saves resources, which is positive from a sustainability perspective.

Examples of innovation:

ZeoCoolZeoCool is a temperature-controlled packaging that maintains complete product integrity of +2° C to +8° C by controlling the internal payload space by reacting to the external ambient temperature. Among other applications, ZeoCool is designed for shipping pharmaceutical and medi-cinal products requiring constant low temperatures during shipping. Combining both heating and cooling technology through exothermic reactions and evaporative cooling, ZeoCool eliminates the need for con-ditioning coolants with fridges and freezers, reducing space requirements, operational costs and saving time, while increasing reliability. ZeoCool is

ideal for all modes of transport.

Board of Directors’ Report | SCA Annual Report 2010 17

Innovation | SCA Group

Page 22: SCA Annual Report 2010 En

Value-adding brand-building

Shared valuesSCA’s three core values Respect, Responsibility

andExcellence,formthebasisforhowtheGroup

conducts business and advances the operation –

with a strong focus on environmental and social

responsibility. These values unite all 45,000

employees at SCA under a shared set of beliefs that

form the basis for leadership and employeeship.

Respect and responsibility for people and the

environment involves continuously developing

operations in a sustainable and responsible man-

ner. The pursuit of excellence provides inspiration to

renew and improve products and solutions in order

to generate increased added value for all of SCA’s

customers, consumers and other stakeholders.

TheGroup’svalue-basedactivitiesprovidethe

platformforbuildingconfidenceinSCAamong

customers, employees, shareholders and other

stakeholders. In a corresponding manner, the

selection of business partners is also based on

SCA’s values.

Brand strategySCA’sstrategyistobuildastrongGroup-wide

brand in which SCA is a guarantor for all of the

Group’sproductbrandsandensuresthatprod-

ucts, raw materials, processes and the entire

operations are developed in a sustainable and

responsible manner.

In addition, the strategy is to build a brand

portfolio with strong product brands, globally,

regionally and locally. A strong local presence,

combined with SCA’s global strength, creates

close relations with customers and consumers

while the economies of scale result in increased

efficiency.Thestrategyalsofacilitatescross-

market synergies and cost savings.

Responsiveness and insight with regard to

customer and consumer needs drive innovation

and business activities, and these are decisive

for developing SCA’s brands. The expertise and

commitment of the employees is crucial in this

effort. In the hygiene business, which encom-

passesmostoftheGroup’sproductbrands,SCA

works actively with brand training internally under

thenameSCABrandAcademy.

Brand modelTo ensure continuous development of SCA’s

brands, activities are pursued in line with a shared

methodandmodel.Thiswayofworkingdefines

the positioning of each brand with the aim of

developing, activating and following up coordi-

nated activities, from innovation and product

development to the consumer in the store. The

model also enables consistent follow-up of

established goals and generates cost synergies

andfacilitatesefficientresourceallocation.The

brand portfolio is evaluated in the annual strategy

process.

Brands within Packaging and Forest Products

SCA’s brand-building focuses on developing distinct and relevant brands based on high customer and consumer insight. Innovation is a key element in this work. Successful innovation work results in differen-tiation and higher added-value for customers and consumers, which contributes to strong market-leading brands and value creation for SCA’s shareholders and stakeholders. Through increased market shares for global and regional brands, the Group’s positions were strengthened in mature as well as prioritised growth markets during 2010.

The SCA brand is summarised by c/o life:Because our products make life easier for you and for millions of people around the world. Because our resources and the way we work are natural parts of the global lifecycle. And because we care.

PackagingandForestProductsmainlyconduct

operations under the SCA brand, but also work

with product brands.

Product brands within Forest Products• PowerPotistheseedlingdevelopedbySCAthatis

marketed to forest owners.

• SCA’spulpgradesaremarketedunderthe

product names Celeste, Star and Luna.

• Publicationpaperproductsarepresentedas

partoftheGraphofamily,forexample,

GraphoCote,GraphoVerdeandGraphoMax.

Product brands within PackagingTosecureauniqueofferingforcustomers,Pack-

aging has a number of patented packaging solu-

tions and paper grades that are positioned under

thebrandsHerculight,ZeoCool,Mira,Truefloand

Freshpack.

SCA Annual Report 2010 | Board of Directors’ Report18

SCA Group|Brands

Page 23: SCA Annual Report 2010 En

Global brands within the hygiene business:

Examples of regional brands within the hygiene business:

Libresse is SCA’s leading brand for femi-nine care products and is centred geo-graphically in Europe, with a market- leading position in the Nordic region with a 32% market share and strong growth in Russia.

The brand was launched successfully in Malaysia during 2010.

SCA is world-leading in incontinence care with the global brand TENA.

TENA is sold in more than 100 countries, with sales exceeding EUR 1bn.

The global market share is 25%. The mar-ket shares in Europe and North America are 41% and 20%, respectively.

SCA’s strongest market for baby dia-pers is the Nordic region, with more than a 60% market share for the Libero brand.

Libero holds more than an 80% market share in Sweden and Norway for pant diapers.

Libero is growing rapidly in Russia and parts of Eastern Europe.

In the AFH tissue segment, SCA is the world’s third-largest supplier with the global brand Tork.

Tork is sold in 80 countries, with sales of more than EUR 1bn.

SCA is the market leader in Europe with a 19% market share and holds a 20% market share in North America.

Tempo is SCA’s consumer tissue brand with strong market positions in Europe. Tempo offers products for personal hygiene, including toilet paper and handkerchiefs.

Tempo is the market leader in handkerchiefs in Hong Kong, with a 67% market share.

Tempo is also growing in the Middle East and Asia.

SCA’s baby diapers are sold in Southeast Asia under the Drypers brand and are market-leading in Malaysia and Singapore, with 37% and 22% market share, respectively. Drypers also hold advanced positions in Thailand and the Philippines.

Saba is SCA’s brand for feminine care products in Mexico and Central America.

Saba holds a strong position in Mexico, with about a 25% market share and advanced positions in several markets in Central America.

Plenty is SCA’s leading consumer tissue brand for products for homes and households in Europe. Plenty commands strong market positions in the UK, the Nether-lands, Austria and Switzerland.

Board of Directors’ Report | SCA Annual Report 2010 19

Brands|SCA Group

Page 24: SCA Annual Report 2010 En

Personal Care

Financial targets• 5–7%annualorganicgrowth

• 30%returnoncapitalemployed

Outcome 2010• Growth1)2%

• Returnoncapitalemployed27%

• Operatingmargin12%

1) Excluding exchange rate effects.

Net sales, 22%

SEK 25,027mCapital employed, 11%

SEK 10,620mOperating profit, 29%

SEK 2,922mAv. no. of employees, 19%

8,610 employees

Net sales Margin

SEKm %

0

5,000

10,000

15,000

20,000

25,000

30,000

201020092008200720060

3

6

9

12

15

18

Net sales and operating margin

SEKm

0

1,000

2,000

3,000

4,000

5,000

20102009200820072006

Operating cash flow

Operating profit ROCE

SEKm %

0

500

1,000

1,500

2,000

2,500

3,000

3,500

201020092008200720060

5

10

15

20

25

30

35

Operating profit and ROCE

Share of Group

SCAAnnualReport2010|Board of Directors’ Report20

Page 25: SCA Annual Report 2010 En

SCA’s market positions

EuropeNorth

America Global

Incontinence care 1 (41%) 3 (20%) 1 (25%)

Baby diapers 3 (12%) – 4 (5%)

Feminine care 3 (8%) – 5 (5%)

Data is based on market data and SCA’s estimates.

Personal Care

Market and brandsTheglobalmarketforpersonalcareproductshas

annualsalesofjustoverSEK290bnandisgrow-

ingatarateofsome3%annually.Europe

accountsforabout30%andNorthAmericafor

20%oftheoverallmarket.Growthisfuelledby

innovation,highermarketpenetrationand

increaseddisposableincomes.Inmaturemar-

kets,babydiapersandfemininecareproducts

haveattainedhighmarketpenetration,whilethe

agingpopulationandlowmarketpenetration

SCA is one of the world’s largest companies in per sonal care products and has a portfolio of incontinence care, baby diapers and feminine care products. All three segments have a high innovation rate and new products are launched continuously. The com pany’s products are sold under SCA’s own brands, for example, the TENA global brand for incontinence care, or retailers’ brands and are distributed via the retail trade and care institu-tions in more than 100 countries.

Strategic priorities: • DevelopSCA’sworld-leadingpositionin

incontinencecareundertheTENA

brand.

• Continuouslyenhanceproductionand

distributionefficiency.

• Continuetogainin-depthinsightinto

consumerandcustomerneedsand

applythisknowledgetoproductdevel-

opmentandincreasethelaunchrateof

innovativeproductofferings.

• Increasethegrowthrateinfast-growing

marketsinEasternEurope,Russia,

Asia,LatinAmericaandtheMiddleEast.

• Growthroughcategoryexpansion

underglobalbrandsandagreatershare

ofhigh-valueproducts.

• Continueactivitiesrelatedtotheglobal

brandplatformsandutilisesynergies.

drivedemandforincontinenceproducts.Indevel-

opingcountries,theuseofallproductcategories

isexpandingasthelevelofdisposableincome

increasesandinsightintothehealthbenefitsof

hygienegrows.

SCAisoneofthelargestcompaniesinper-

sonalcareproductsintheworld,withaportfolio

ofglobal,regionalandlocalbrands.

Inincontinencecare,SCAisaworldleader

withitsglobalbrandTENA,whichgenerates

annualsalesofmorethanEUR1billion.The

globalmarketsharetotals25%andthemarket

sharesinEuropeandtheUSare41%and20%,

respectively.SCAincreaseditsmarketsharesin

bothEuropeandNorthAmericain2010duetoa

broaderandimprovedproductoffering.

SCAisthethird-largestplayerinbabydiapers

inEuropewithamarketshareof12%.InEurope,

SCAsellsbabydiapersunderownbrandsand

retailers’brands.SCA’sstrongestmarketisthe

Nordicregionwithamarketshareofmorethan

60%undertheLiberobrand,whichisalsogrowing

rapidlyinRussiaandpartsofEasternEurope.SCA

commandsaleadingpositioninSoutheastAsia

withtheDrypersbrandandinSouthAmericawith

thePequeñínbrandthroughajointventure.The

brandsDryKidsandTessybabieswereacquiredin

MexicoandCentralAmericaduringtheyear.

SCAisthethirdlargestplayerinfemininecare

inEuropewithamarketshareof8%.SCAholds

leadingpositionsintheNordicregion,Australia,

NewZealandandfast-growingmarketsinEastern

Europe,Russia,LatinAmericaandtheMiddle

East.Libresse,Libra,Bodyform,Saba,Nosotras

andNanaaresomeofSCA’sstrongfemininecare

brandssupportedbySCA’sglobalbrandplatform.

Production and efficiencySCAmanufacturesat27productionplantsin23

countries.Productsaredistributedviatheretail

trade,chemistsandcareinstitutionsinmorethan

100countries.Productionefficiencyisconsis-

tentlyimprovedbymeansofmodernisationand

investmentsinnewandexistingfacilities.Asa

result,theseeffortsenhancethecoststructure

andstrengthenproductqualityandoperational

reliability.Duringtheyear,anefficiencypro-

grammeinSCA’sEuropeanbabydiaperopera-

tionswasinitiatedtostrengthenthecustomer

offeringandcompetitiveness.Aspartofthis

work,aproductionfacilityinFrancewasclosed

andmanufacturingtransferredtoanexisting

plantinPoland.Inaddition,theefficiencyofa

plantintheNetherlandswasenhanced.Theman-

ufactureofbabydiaperscommencedatanew

productionfacilityinRussiaduringtheyear.Pro-

ductionofincontinencecareproductswillalso

startatthesameplantin2011.

Innovation and product development SCAinvestsconsiderableresourcesinitsefforts

togaindeepinsightintoconsumerandcustomer

needs.Thisinsightformsthebasisforthe

Group’sinnovationsandproductdevelopment.

Thenumberoflaunchesofnewandupgraded

productshasincreasedsteadilyinrecentyears.

Theemphasisisonfunction,fit,design,costeffi-

ciencyandsustainableproducts.

In2010,SCAcontinuedtodevelopnewproductsatanincreasinglyrapidpace,advancedits

positionsinbothmatureandemergingmarketsandstrengthenedtheglobalbrandTENAandits

regionalandlocalbrands.

Board of Directors’ Report|SCAAnnualReport2010 21

PersonalCare|Business areas

Page 26: SCA Annual Report 2010 En

GrowthSeveralfactorssuggestthecontinuationof

healthygrowthinpersonalcareproducts,particu-

larlyinemergingmarkets.Growthisdrivenby

innovation,theglobalpopulationincrease,an

agingpopulation,highermarketpenetrationand

increaseddisposableincomes.SCA’stargetis

annualorganicgrowthof5–7%.

Incontinence care Incontinenceaffectsbetween5–7%ofthe

world’spopulation.Theglobalmarkettotals

someSEK55bn,andisgrowingatabout4%

annually.Europeaccountsforslightlymorethan

40%ofthetotalmarketandNorthAmericafor

justunder30%.Marketgrowthisdrivenbya

higherpaceofinnovation,increasingmarketpen-

etration,anagingpopulation,risinghousehold

incomesandgrowingwelfarerequirements.Mar-

ketpenetrationinmaturemarketsislowandis

evenlowerinemergingmarkets.

WiththeTENAbrand,SCAisthegloballeader

withamarketshareof25%andsalesinmore

than100countries.SCAalsocommandsavery

strongpositioninEurope,withamarketshareof

41%.SCAwilldevelopitsleadingmarketposition

throughsuperiorconsumerinsight,innovative

productdevelopmentandefficientproduction.

Institutionalcareandhomecareaccountfor

62%oftheglobalmarket.Here,themainfocus

isonsupplyinghigh-qualityproductscombined

withqualifiedadvisoryservicesthatsimplify

handlingproceduresandreducecostsforcare

providers.

Theretailmarketisthefastestgrowingseg-

ment,accountingfor38%oftheglobalmarket.

SCAprovidessupportthroughinformation,

advertisementsandthedevelopmentofproducts

thatareincreasinglydiscreet,easytouseand

effective.

Increasingunderstandingandacceptance

amongconsumersiscrucialasregardsinconti-

nence,atopicthatisoftensurroundedbysocial

taboos.Demandisstrengthenedthroughinfor-

mationandmarketingissupportedbyeffective,

comfortableandeasilyaccessibleproducts.

SCA’stoppriorityishighgrowthinallseg-

mentswithstrengthenedglobalmarketleader-

shipindevelopedmarketsandestablishinglead-

ingpositionsinEasternEurope,Russia,Asia,the

MiddleEastandLatinAmerica.Chinaisamarket

withlowpenetrationandfavourabledemographic

conditionswithimmensegrowthpotentialfor

incontinencecare.

Baby diapers TheglobalmarkettotalsapproximatelySEK

140bn,andisestimatedtogrowatabout3%

annually.TheEuropeanmarketaccountsfor

almost30%,withlowannualgrowth.Themost

significantgrowthisinAsia,LatinAmerica,the

MiddleEastandAfrica,wherebirthratesarehigh

andhouseholdincomesarerising.Themajorityof

childrenworldwideundertheageoftwostilldo

notenjoythepracticalandeffectivehygienepro-

videdbydisposablediapers,whichmeansthat

thereissignificantfuturepotential.

SCAmarketsbabydiapersinsome70coun-

tries.SCAisthethird-largestplayerintheEuro-

peanmarket,withashareof12%.IntheNordic

region,SCAhasmorethan60%ofthemarket

withitsLiberobrand,whichisalsogrowingrap-

idlyinRussiaandpartsofEasternEurope.SCA

alsoholdsleadingpositionsinpartsofSoutheast

AsiaandLatinAmerica.Theefficiencyofthe

businessmodelforretailers’brandshasbeen

enhancedtoensurecompetitivenessandprofit-

ability.Focusisdirectedtostrengtheningthe

favourablepositionsofSCA’sownbrandsinsuch

maturemarketsastheNordicregion,NewZea-

landandfast-growingmarketsinEasternEurope,

Russia,LatinAmerica,theMiddleEastandSouth-

eastAsia.Emergingmarketshaveexcellentcon-

ditionsforcontinuedgrowthduetolowmarket

penetrationandhighdemand.

Feminine care Theglobalfemininecaremarketamountsto

aboutSEK90bnandisgrowingbyapproximately

2%annually.TheEuropeanmarketaccountsfor

about25%andisdominatedbypads,represent-

ing50%,whilepantylinersandtamponseach

accountfor25%.

SCAsellsfemininecareproductsinmorethan

80countries.InEurope,SCAisthethird-largest

player,withamarketshareof8%.SCAholds

strongmarketpositionsinLatinAmerica,Europe,

AustraliaandNewZealand.Theproportionof

theGroup’ssalesisincreasinginLatinAmerica,

Russia,EasternEurope,andtheMiddleEast,

whereSCAcommandsstrongpositionsand

focusesongrowth.

Thegrowingnumberofwomenofchild-

bearingage,andrelativelylowmarketpenetration

infast-growingcountries,contributetoahigh

increaseindemandinemergingmarkets.

Femininecareproductsaredevelopedforthe

company’sownregionalandlocalbrands,which

aresupportedbySCA’sglobalbrandplatform.

Basedonin-depthconsumerandcustomer

insight,SCAprioritisesinvestmentsinnewprod-

uctconceptsandmarketingandendeavoursto

strengthenitscompetitivenessthroughcontinu-

ousefficiencyenhancementandcost-effective

productioninsuchareasasEasternEurope.

Emergingmarketshaveexcellentconditionsfor

continuedgrowthduetolowmarketpenetration

andhighdemand.

Incontinence care – global market shares

Kimberly-Clark, 9%

First quality products, 7%

Unicharm, 7%

Others, 52%

SCA, 25%

Incontinence care – sales channels, global market

Retail outlets, 38%

Institutional and homecare, 62%

Baby diapers – brand categories, Europe

Retailers’ brands, 22%

Brands, 78%

Feminine care – brand categories, Europe

Retailers’ brands, 14%

Brands, 86%

Data is based on market data and SCA’s estimates.

SCAAnnualReport2010|Board of Directors’ Report22

Business areas|PersonalCare

Page 27: SCA Annual Report 2010 En

Key figures

SEKm 2010 2009

Net sales 25,027 25,716

Operating cash surplus 4,111 4,467

Change in working capital –166 835

Current capital expenditures –545 –795

Other changes in operating cash flow –170 –71

Operating cash flow 3,230 4,436

Operating profit 2,922 3,235

Operating margin, % 12 13

Capital employed 10,620 11,430

ROCE, % 27 29

Strategic investments

plant and equipment –813 –1,232

company acquisitions/divestments –412 –44

Average number of employees 8,610 7,269

Net salesfellby3%(roseby2%excluding

exchangerateeffects)toSEK25,027m(25,716).

Increasedmarketactivitiesimpactedvolumes

positivelyandsalesroseby2%.Thevolume

increaseisrelatedtoincontinenceandfeminine

care.Salesroseinemergingmarketsby10%

excludingexchangerateeffects.Highdemand

wasnotedinmaturemarketsin2010andemerg-

ingmarketscontinuedtoreportstrongincreases

indemand.

SalesforincontinencecareundertheTENA

brandroseby4%,excludingexchangerate

effects.GrowthinLatinAmerica,Russiaand

EasternEuroperemainedveryhealthy.Anew

ultra-thinincontinencecareproductwaslaunched

duringtheyear,whichusesnewtechnologyto

offerimprovedcomfortwiththesamesafetyand

odourcontrolasthickerproducts.Asacomple-

menttotheleadingpremiumsegment,anew

competitiveproductlinewaslaunchedtocapital-

izeongrowthintheeconomysegment.The

ongoingmarkettestinChinawasexpandedto

newregionsduringtheyearandSCAtrained

about5,000nursesinincontinencecare.The

marketshareinincontinencecareforSCA’sglobal

brandTENArosefrom24%to25%.Market

sharesstrengthenedinbothEuropeandNorth

Americato41%and20%,respectively.

Salesforbabydiapersdeclinedby4%,ex-

cludingexchangerateeffects.Thisdecreaseis

mainlyattributabletotheEuropeanbabydiaper

operationstoretailers’ownbrands.Newthinner

andmorecomfortablebabydiaperswere

launchedduringtheyear.Otheradvantageswith

SCA’sthindiapersaretheloweramountofraw

materialsrequiredandlowerfreightvolumes,

whichispositiveintermsofboththeenvironment

andcosts.Inselectedmarkets,SCA–asthefirst

brandinEurope–successfullyintroducedapant

diaperintheeconomysegment.TheLibero

brand’senvironmentalprofilewasstrengthened

duringtheyearnowthatallsizesofopendiapers

andbabycareproductsmeettherequirements

oftheNordicEco-label.Thethird-largestsupplier

ofbabydiapersintheMexicanmarketwas

acquiredandanefficiencyimprovementpro-

grammewasinitiatedintheEuropeanbaby

diaperoperations.Annualsavingsareestimated

atEUR15m,whichareexpectedtobegenerated

fromthethirdquarterof2011.SCAinvestedin

localproductiontomeetincreasingdemandin

Russia.Theproductionofbabydiapersbeganin

2010andproductionofincontinencecareprod-

uctswillcommenceduring2011.

Salesforfemininecareroseby6%excluding

exchangerateeffects,drivenbyfavourablesales

growthinemergingmarkets.SCAlaunchedfemi-

ninecareproductsundertheLibressebrandin

MalaysiaandtamponsinSwedenandtheNether-

landswithencouragingresults.InLatinAmerica,

SCAproducedaproductrangeforSabawitha

smallnumberoffemininecareproductsineach

package,whichimprovesavailabilityforconsum-

erswithlowerdisposableincomes.

Operating profit was10%lowerthaninthepre-

cedingyear(6%excludingexchangerateeffects)

andamountedtoSEK2,922m(3,235).Highervol-

umesandlowercostsdidnotfullyoffsethigher

costsforrawmaterialsandmarketingactivities.

Operating margin was11.7%(12.6).

Return on capital employed totalled27%(29).

Operating cash surplus felltoSEK4,111m

(4,467).OperatingcashflowdeclinedtoSEK

3,230m(4,436).Theloweroperatingcashsurplus

andhighertied-upworkingcapitalreducedcash

flow.Currentcapitalexpenditureswerelower

thanintheprecedingyear.

Capital expendituresamountedtoSEK1,358m

(2,027).

Key events

• StrengthenedgloballeadershipfortheTENAbrandinincontinencecare.

• Higherpaceofinnovationandlaunchofimprovedcustomersofferings.

• StartofproductionofbabydiapersinRussia.

• AcquisitionofbabydiaperoperationinMexico.

• EfficiencyimprovementprogrammecommencedinEuropeanbaby

diaperoperations.

Operating profit, SEKm: Operating margin:

2,922 12%

SCA’s sales by region

SCA’s sales by product segment

Baby diapers, 27%

Feminine care, 17%

SCA’s sales to retailers’ brands as a proportion of total sales: Incontinence care, 0%Baby diapers, 21%Feminine care, 9%

Incontinence care, 56%

North America, 14%

Latin America, 8%

Asia, 7%

Australasia, 5%

Other, 2%

Europe, 64%

Operations in 2010

Excluding restructuring costs.

Board of Directors’ Report|SCAAnnualReport2010 23

PersonalCare|Business areas

Page 28: SCA Annual Report 2010 En

Tissue

Net sales, 36%

SEK 39,870mCapital employed, 36%

SEK 36,168mOperating profit, 30%

SEK 3,041mAv. no. of employees, 38%

17,327 employees

Net sales Margin

SEKm %

0

10,000

20,000

30,000

40,000

50,000

201020092008200720060

2

4

6

8

10

Net sales and operating margin

SEKm

0

1,000

2,000

3,000

4,000

5,000

6,000

20102009200820072006

Operating cash flow

Operating profit ROCE

SEKm %

0

800

1,600

2,400

3,200

4,000

201020092008200720060

2

4

6

8

10

Operating profit and ROCE

Share of GroupFinancial targets• 3–4%annualorganicgrowth

• 13%returnoncapitalemployed

Outcome 2010• Growth1)2%

• Returnoncapitalemployed8%

• Operatingmargin8%

1) Excluding exchange rate effects.

SCAAnnualReport2010|Board of Directors’ Report24

Page 29: SCA Annual Report 2010 En

Tissue

SCA’s market positions

EuropeNorth

America Global

Consumer tissue 1 (25%) – 3 (8%)

AFH tissue 1 (19%) 3 ( 20%) 3 (16%)

Data is based on market data and SCA’s estimates.

SCA is the world’s third-largest supplier of tissue. The company offers consumer tissue products including toilet paper, kitchen rolls, facial tissue, handkerchiefs and napkins. Products are sold both under own and retailers’ brands. In the Away-From-Home (AFH) product segment – encompassing hospitals, healthcare institutions, large work-places, restaurants and hotels – SCA develops and sells complete hygiene solutions comprising dispensers, tissue, soap, service and maintenance.

Market and brands Theglobalmarketfortissueisvaluedatapproxi-

matelySEK385bnannually.Europeaccountsfor

some25%andNorthAmericaforabout30%of

theoverallmarket,withgrowthratesof3%and

2%,respectively.Thereisahighergrowthratein

EasternEuropethaninmorematuremarketsin

theWestasaresultofrisingdisposableincomes

andgreateruseoftissueproducts.

Strategic priorities: • ContinuetostrengthentheglobalTork

brandinAFHtissue.

• IncreasegrowthinAFHtissue.

• Continuetofocusonconsumerand

customerinsight,innovations,product

developmentandmarketing.

• Raisethecompany’spresencein

emergingmarkets,mainlythroughpro-

prietarybrands.

• Continuedevelopmentoftheconsumer

tissuebrandplatforminEurope.

• Strengthenpositionsofownconsumer

tissuebrands.

• Provideaclearer,added-valueoffering

forretailers’brands.

• Enhanceefficiencyofproductionand

distribution.

SCAcontinuedtodevelopnewproductsatanincreasinglyfastpace,advanceditspositionsin

bothmatureandemergingmarketsandstrengthenedtheglobalbrandTorkanditsregional

brands.

SCAisEurope’slargestsupplierofconsumertis-

sue,withamarketshareof25%,andisthe

world’sthird-largestwithan8%marketshare.

SCAhasthebrandsFamiliaandFavoritainSouth

Americathroughjointventures,whichholdstrong

positionsinsuchemergingmarketsasColombia,

ChileandEquador.SCAhasastrongposition

withtheRegiobrandinthelargeMexicanmarket.

SCAisthesecond-largesttissuesupplierinAus-

tralia.Tempo,ZewaandPlentyaretheleading

brandsinlargepartsofEurope.TheEdetbrand

hasastrongpositionintheNordicregion.

ForAFHtissue,SCAisnumberthreeglobally

withtheTorkbrand,whichcommandsa16%

shareofthemarket.SCAisthemarketleaderin

Europewitha19%marketshareandisnumber

threeinNorthAmericawithamarketshareof20%.

Forconsumertissue,anewbrandplatform

wasdevelopedinEuropetoimprovetheperfor-

manceinmeetingconsumerrequirementsand

buildstrongerbrandsovertime.Theaimisto

enhancetheefficiencyofthebrandportfolioand

alsodifferentiatethebrandsforproducts

intendedforpersonalhygieneandproducts

intendedforhomesandhouseholds.Theworkon

implementingthebrandplatformisprogressing

accordingtoplan.

Production and efficiencyProductiontakesplaceatSCA’s38facilitiesin

18countries.Themanufacturingprocessesand

logisticsareoptimisedthroughcontinuous

improvements,investmentsinmoreefficient

plantsandthediscontinuationofunprofitable

capacity.Theintegrationofpreviousacquisitions

facilitatedtherationalisationoftheEuropean

tissueoperationsandproductionwasconcen-

tratedonefficientfacilitiesinstrategiclocations.

Thefollowingactivitieswereundertakento

strengthencompetitivenessthroughcost-efficient

productionandincreasegrowthinemergingmar-

kets:SCAisinvestinginnewcapacityinLatin

AmericaandRussia.Anewproductionplantwas

commissionedinRussiain2009andanewfacil-

ityinMexicowasopenedattheendof2010.

TheconstructionofatissueplantinColombia

commenced,withproductionscheduledtostart

in2011.

Innovation and product developmentTheabilitytounderstandthedemandsoftomor-

row’sconsumersandcustomersisafundamental

strategyforthecreationoflastingvalue.SCAis

investingmajorresourcesininsightandinnova-

tion,withallproductdevelopmenttakingplaceon

thebasisofin-depthcustomerandconsumer

insight.Inrecentyears,alargenumberofnew

andupgradedproductshavebeenlaunchedand

theservicelevelenhanced.Focusisdirectedto

thedevelopmentofmaterialsandfunctionsto

ensureabroaderselection,improvedstrength,

softnessandabsorptioncapacity,anddifferent

typesofdispenserstooffermorecomfortable

andeffectiveuse.

Board of Directors’ Report|SCAAnnualReport2010 25

Tissue|Business areas

Page 30: SCA Annual Report 2010 En

Brand categories – Consumer tissue, Europe

Retailers’ brands, 54%

Manufacturers’ brands, 46%

Product breakdown – Consumer tissue, Europe

Kitchen rolls, 20%

Handkerchiefs, 14%

Napkins, 7%

Toilet paper, 59%

Market shares – Consumer tissue, Europe

Sofidel, 12%

Kimberly-Clark, 11%

Georgia-Pacific, 8%

Other, 44%

SCA, 25%

Market shares – AFH tissue, North America

Georgia-Pacific, 30%

Kimberly-Clark, 21%

Other, 29%

SCA, 20%

Market shares – AFH tissue, Europe

Kimberly-Clark, 15%

Georgia-Pacific, 11%

Other, 55%

SCA, 19%

GrowthTheconditionsforcontinuedgrowthintissueare

favourable,particularlyinemergingmarkets.

Growthisdrivenbyinnovation,theglobalpopula-

tionincrease,highermarketpenetrationand

increaseddisposableincomes.Marketpenetra-

tionoutsideWesternEuropeandtheUSremains

relativelylow,withconsiderablegrowthpotential.

SCA’stargetisannualorganicgrowthof3–4%.

Consumer tissueTheglobalmarketforconsumertissueisvalued

atapproximatelySEK290bnannually.Europe

accountsforsome25%andNorthAmericafor

slightlylessthan30%oftheoverallmarket,with

growthratesof4%and2%,respectively.Thereis

ahighergrowthrateinEasternEuropethanin

morematuremarketsintheWestasaresultof

risingdisposableincomesandgreateruseof

tissueproducts.

SCAisthelargestsupplierinEuropeandin

therapidlyexpandingRussianmarket.SCAisthe

third-largestsupplierinLatinAmericaandinAus-

tralia,SCAcommandsthenumbertwoposition.

SCAconductssalesofconsumertissueinsome

60countries.

SCAprioritisesgrowthinthefast-growing

marketsinEasternEuropeandLatinAmerica,

whicharestronglybranddefined.

Consumertissueincludestoiletpaper,kitchen

rolls,facialtissue,handkerchiefsandnapkins.

SCAoffersretailersacompleterangeofproducts

inthehighestqualitysegmentsunderSCA’sown

brandsandhigh-qualityproductsforretailers’

brands.Foranumberofyears,SCAhasbeen

workingwithafull-serviceofferingthatincludes

productionanddelivery,aswellasservicecoop-

erationforproductdevelopment,productrange,

design,marketingandlogistics.Thisservicecon-

cepthasbeenwellreceivedbytheleadingEuro-

peanretailchains.

SCAsells49%ofitsproductsunderitsown

brandsandtheremainderaresoldunderretailers’

brands.SCA’stargetistofurtherstrengthen

brandpositionsinthematureEuropeanmarkets,

whilemaintainingtheimportantmarketforretail-

ers’brands.

AFH tissueTheglobalmarketforAFHtissuetotalsabout

SEK95bn,ofwhichNorthAmericaandWestern

Europeaccountforjustover40%and30%,

respectively.Inthissegment,themarketis

expandingbyabout3%annuallyinWestern

Europe,somewhatlessintheUSandbyasignifi-

cantlyhigherrateintherestoftheworld.

SCAworkswiththeglobalbrandTork,which

issoldin80countriesandgeneratessalesof

morethanEUR1bneveryyear.Aglobalbrand

providessignificantsynergiessincethereislittle

differenceinconsumerandcustomerpreferences

withregardtopaperanddispensersystemsin

differentpartsoftheworld.TheTorkbrandisthe

marketleaderinEuropeandoneoftheleadersin

NorthAmerica.

IntheAFHsegment,SCAdeliverscomplete

hygieneconceptstoinstitutionsandcompanies

comprisingtissueproductsandvariousmodels

ofdispensers,soap,alcogel,lotionandservices.

Mostofthecustomersareactiveinsuchareasas

healthcare,industry,offices,hotelsandrestau-

rants.Productsaredistributedviawhole-salers

andservicecompanies.SCA’smarketpositionis

particularlystrongintherestaurantsectorin

NorthAmerica,wherenearlyeverysecondnapkin

issuppliedbySCA.

Data is based on market data and SCA’s estimates.

SCAAnnualReport2010|Board of Directors’ Report26

Business areas|Tissue

Page 31: SCA Annual Report 2010 En

Key events

• HighermarketsharesfortheTorkbrand.

• Higherpaceofinnovationandlaunchofnewproducts.

• StartofproductionattissueplantinMexico.

Operating profit, SEKm: Operating margin:

3,041 8%

Operations in 2010

SCA’s sales by region

SCA’s sales by product segment

AFH tissue, 38%

Consumer tissue, 62%

North America, 18%

Australasia, 8%

Latin America, 7%

Asia, 1%

Europe, 66%

Key figures

SEKm 2010 2009

Net sales 39,870 41,425

Operating cash surplus 5,277 6,363

Change in working capital –27 1,196

Current capital expenditures –1,113 –1,301

Other changes in operating cash flow –104 –279

Operating cash flow 4,033 5,979

Operating profit 3,041 3,946

Operating margin, % 8 10

Capital employed 36,168 37,196

ROCE, % 8 10

Strategic investments

plant and equipment –1,409 –1,295

company acquisitions/divestments –17 68

Average number of employees 17,327 17,714

Net sales fellby4%(roseby2%excluding

exchangerateeffects)toSEK39,870m(41,425).

HighervolumesofAFHtissueincreasedsalesby

1%andhigherpricesincreasedsalesby1%.

Salesinemergingmarketsroseby6%,excluding

exchangerateeffects.

InEurope,demandforAFHtissueroseinline

withtheupswingintheeconomy,whiledemand

forconsumertissuewasstable.InNorthAmerica,

demandforAFHtissuewasstable.

Sharplyelevatedrawmaterialcostsduringthe

yearresultedinintensiveeffortstoimproveprofit-

abilityandSCAimplementedgradualprice

increasesduringthesecondhalfof2010.Inaddi-

tion,focuswasdirectedtoreducingcosts,further

increasingthepaceofinnovationandlaunch,and

improvingtheproductionstructureandcustomer

service.

Salesofconsumertissueroseby1%exclud-

ingexchangerateeffects.Theincreaseispri-

marilyduetostronggrowthinEasternEurope

andRussia.Theimplementationofthenewbrand

platformforconsumertissueinEuropecontinued

throughouttheyear,theaimofwhichwasto

reducethenumberofbrands.Severalnewprod-

uctswerelaunchedduringtheyearandSCA

strengtheneditsleadingpositionintheRussian

marketwiththeZewabrand.SCAlaunchedmoist

toiletpaperundertheEdetbrandintheNether-

lands.Thepackagingisattacheddirectlytothe

wallusingsuctionpads,whichdonotdamage

thebathroomwall.InHongKong,handkerchiefs

speciallydesignedforchildrenwerelaunched

undertheTempoKidsbrand.

SalesforAFHtissueroseby5%excluding

exchangerateeffects.Theincreaseisattributable

tohealthygrowthinNorthAmerica,Western

Europe,RussiaandLatinAmerica.WithitsTork

brand,SCAincreaseditsmarketsharesforAFH

tissueinbothEuropeandNorthAmericaduring

theyear.InEurope,themarketsharerosefrom

18%to19%andinNorthAmericafrom18%to

20%.Anewseriesofdispensers,TorkPerfor-

mance,wassuccessfullylaunchedduringthe

year.Tooffersolutionscustomisedtotheneeds

ofthegrowingcafemarket,SCAlauncheda

smallervariationoftheTorkXpressnapdispenser,

whichdeliversonlyonenapkinatatime.This

reducescostsforcustomerswhilesavingon

resources,whichispositivefromasustainability

perspective.Newneeds-adaptedpackaging

whichiseasiertocarry,openandhandlewas

developedforcleaningpersonnelduringtheyear.

ProductionstartedatanewfacilityinMexico

duringtheyeartoimproveSCA’scustomeroffer-

ing,competitivenessandprofitabilityinthe

region.Theconstructionofatissueplantcom-

mencedinColombiawithproductionscheduled

tostartin2011.

Operating profit declinedby23%(19%exclud-

ingexchangerateeffects)toSEK3,041m(3,946).

Thesharpincreaseinrawmaterialcostsduring

theyearledtothedeclineinoperatingprofit.

Higherpricesandvolumesandlowerproduction

andenergycostshadapositiveimpactonprofit.

Operating margin amountedto7.6%(9.5).

Return on capital employed was8%(10).

Operating cash surplusdeclinedtoSEK5,277m

(6,363).OperatingcashflowdecreasedtoSEK

4,033m(5,979).Theloweroperatingcashsurplus

combinedwithhighertied-upworkingcapitalre-

ducedcashflow.Currentcapitalexpenditures

werelowerthanintheprecedingyear.

Capital expenditures totalledSEK2,522m

(2,596).

Board of Directors’ Report|SCAAnnualReport2010 27

Tissue|Business areas

Page 32: SCA Annual Report 2010 En

Packaging

Net sales, 27%

SEK 29,633mCapital employed, 22%

SEK 22,229mOperating profit, 16%

SEK 1,577mAv. no. of employees, 34%

15,218 employees

Net sales Margin

SEKm %

0

10,000

20,000

30,000

40,000

201020092008200720060

2

4

6

8

Net sales and operating margin

SEKm

0

300

600

900

1,200

1,500

20102009200820072006

Operating cash flow

Operating profit ROCE

SEKm %

0

500

1,000

1,500

2,000

2,500

3,000

201020092008200720060

2

4

6

8

10

12

Operating profit and ROCE

Share of GroupFinancial goal• 10%returnoncapitalemployed

Result 2010• Growth1)20%

• Returnoncapitalemployed7%

• Operatingmargin5%

1) Excluding exchange rate effects, divestments and closures.

SCAAnnualReport2010|Board of Directors’ Report28

Page 33: SCA Annual Report 2010 En

Packaging

SCA is Europe’s second-largest packaging company. The Packaging business area is a fully integrated – from forest to recycling – sustainable company. Packaging is a full-service supplier of packaging solutions for a large number of applications, including consumer and display packaging, shelf-ready packaging solutions, custom-ised protective packaging and transport packaging made primarily from corrugated board, as well as an entire service concept aimed at manufacturers, distributors and retailers. Most of SCA’s packaging is used for food, consumer durables and industrial products.

Market TheEuropeancorrugated-boardmarketisvalued

atapproximatelySEK235bnandgrows2–3%

annuallyoverabusinesscycle.

SCAisthesecond-largestproducerofcorru-

gatedboardandcontainerboardinEuropewith

marketsharesof10%and8%,respectively.The

Europeanmarketisfragmentedandthecapacity

ofthefivelargestproducersofcorrugatedboard

andcontainerboardaccountsforabout45%of

theEuropeanmarket.

SCAcommandsfavourablemarketpositions

intransportpackagingwherecustomersoften

seektoestablishlong-termpartnersforcomplete

logisticsanddesignsolutions.Thankstoitsmar-

Strategic priorities:• Continuetorationaliseandstreamline

operations.

• Providecompletepackagingsolutions

andadded-valueoffering.

• Leaddevelopmentinthepackaging

marketthroughinnovationandproduct

development.

• Capitaliseongrowthopportunitiesin

profitable,high-valuesegments.

• ContinuedfocusonEurope.

ket-leadingpositionininnovationanddesign,

SCAholdsastrongpositioninthehigh-value

segmentoffoodandconsumer-durables.Incol-

laborationwithitscustomers,theGroupdevelops

completepackagingsolutionstomeetexacting

demandsregardingthequalityandappearanceof

packaging.SCAholdslargemarketsharesinthe

fast-growinginternationalluxurygoodssegment

inwherequalityandproductpresentationandthe

brandcanbeenhancedthroughpackaging.

Production and efficiencySCAhassome170facilitiesandmillsin21coun-

triesinEurope,ofwhich34plantsarelocatedin

eightEasternEuropeancountries.Containerboard

isproducedatsixmills,ofwhichfourproduce

recycledgradesandtwokraftliner.SCA,Europe’s

second-largestsupplierofcorrugatedboard

packaging,operatesinanintegratedbusiness

modelinwhichcustomersareofferedmajor

advantagesintheformofefficient,sustainable

productionnetworksandbusinesssystems.To

strengthencompetitivenessthroughcost-efficient

production,theproductionprocessesandlogis-

ticsareoptimisedthroughcontinualimprove-

ments,investmentsinmoreefficientplantsand

theclosureofunprofitablecapacity.Duringthe

year,therestructuringprogrammeinitiatedin2009

wasconcluded.Byyear-end2010,theentirepro-

jectedannualsavingsofslightlymorethanSEK

1bnhadbeenachievedonanannualbasis.

Innovation and product developmentSCAdevelopscompletepackagingsolutionsand

hasstrategiccompetenceandcompetitiveness

withanInnovationCentreand16DesignCentres

inEurope.Atthesecentres,newpackagingsolu-

tionsaredeveloped,andnewtechnologies,

materialsolutionsanddesigntoolsaretestedin

closecooperationwithcustomers.Thecreation

ofattractiveopportunitiesforproductdisplayin

storesisakeyfactorforstrengtheningbrandrec-

cognitionforcustomers.Theaimistoadaptand

optimisethefunctionalityofpackagingbasedon

logisticalrequirementsanddeliveracomplete

solutionforeachstepofthepackagingchain.

TheSCAR&DCentreinSundsvall,Sweden,

conductsstrategicresearchanddevelopment.

Thecentrehousesinternalspecialistexpertise

withinkeyareas,butthecentrealsocooperates

closelywiththeadjacentMid-SwedenUniversity

inSundsvall.

SCAanalysestheentiredeliverychaintomini-

misematerialconsumptionandmaximisemate-

rialandenergyrecovery.Decisionsonpackaging

designscanhaveahighenvironmentalimpact.

TherightdesignallowsSCAtoprovideitscus-

tomerswithpackagingthatensuresoptimum

performancewithoutunnecessarywaste.The

rightdesignalsoensuresbettercubicutilisation.

Ifgoodscanbeshippedmoredensely,lesstrans-

portisrequired,lessfuelisconsumedandfewer

emissionsaregenerated.Therightdesign

requirestherighttoolsandSCAusesanumberof

proprietarytoolsduringthedesignprocess.

Today’ssocietydemandspackagingthatfacil-

itatessustainabledistributionandisproduced

frommaterialswiththeleastpossibleenviron-

mentalimpact.SCA’sintegrationsystemcom-

plieswiththisprinciple:corrugatedboardbegins

withfibrefromtheforestthatisusedforproduc-

tionofpaperandpackagingandendswiththe

recoveryofrecycledfibre,allofwhichismanaged

withintheGroup.

Board of Directors’ Report|SCAAnnualReport2010 29

Packaging|Business areas

Page 34: SCA Annual Report 2010 En

Containerboard, producers in Europe (capacity)

Corrugated board, producers in Europe (capacity)

SCA, 10%

DS Smith, 5%

SAICA, 5%

Mondi, 4%

Other, 56%

Smurfit Kappa, 20%

Sources: SCA, Pöyry

SCA, 8%

SAICA, 7%

Mondi, 6%

Prinzhorn, 6%

Other, 56%

Smurfit Kappa, 17%

Sources: SCA, Pöyry

GrowthWithinPackaging,SCAwillcontinuetofocuson

Europe,withtheaimofachievinggrowthinpace

withthemarket.Continuedfocusonefficiency

andinnovationareimportantinitiativesto

increasetheshareofvalue-addedproducts.

Workondevelopingthevaluechainandmaking

itmoreefficientandsustainableaswellasfinding

newproductareasarealsoinitiativesaimedat

strengtheningcompetiveness.Long-termcom-

petitivenessisalsobenefitedbySCA’senviron-

mentalprofile.

Thereisadistincttrendtowardlighterpack-

agingandpackagingwithhigher-qualityprinting

requirements.Demandforconsumer-goods

packagingisstableandistrackingconsumption

trends.Growthintransportpackagingissensitive

toeconomicmovementsandvariesdepending

ontrendsinthetradeandmanufacturingindus-

tries.High-valuesegmentsarelesssensitiveto

economicmovementsthanpackagingforcapital

goods.

Inthelongterm,SCA’sfocusistodevelopits

leadingpositionsinadvancedpackaginginhigh

value-addedsegments.Thesesegmentshavea

morestablerateofgrowthandofferSCAfuture

expansionopportunitieswithsolidgrowth.

Corrugated board Atthesametimeasitsleadingpositionsin

advancedpackagingaredevelopedinhighvalue-

addedsegments,theefficiencyofmorestan-

dardisedpackagingsolutionsforsuchapplica-

tionsasthetransportandpackagingofindustrial

componentsisbeingenhanced.Needs-adapted

andpurpose-designedpackagingisaprerequi-

siteforinternationaltradeandisthusacrucial

factorinensuringthewelfareoftheglobalecon-

omy.Toanincreasingdegree,packagingisused

totransport,marketandsellitscontent.Packag-

ingisthusanimportantcarrierofthebrandand

marketcommunication.

Thetwolargestmarketcategoriesforcorru-

gatedboardpackagingarethefoodandmanu-

facturingindustries,whichaccountforapproxi-

mately45%and30%,respectively.Thelargest

segmentinthefoodindustryisprocessedfood,

followedbyfreshfoodandbeverages.Consumer

durablesisanothermajormarketcategory,

accountingforabout15%ofthetotalmarket.

SCAAnnualReport2010|Board of Directors’ Report30

Business areas|Packaging

Page 35: SCA Annual Report 2010 En

Key events

•Increasedrateofinnovationandgrowthinhighvalue-addedsegments.

• Restructuringprogrammecarriedoutasplanned.

• DivestmentoftheAsiancorrugatedboardoperation.

Operating profit, SEKm: Operating margin:

1,577 5%

Operations in 2010

SCA’s sales by product segment

Consumer packaging, 20%

Protective packaging, 3%

Service, 4%

Industrial packaging, 4%

Conventional corrugated board packaging, 69%

Key figures

SEKm 2010 2009

Net sales 29,633 28,359

of which internal 347 534

Operating cash surplus 2,921 2,047

Change in working capital –330 489

Current capital expenditures –1,023 –1,157

Other changes in operating cash flow –400 –515

Operating cash flow 1,168 864

Operating profit 1,577 413

Operating margin, % 5 1

Capital employed 22,229 25,799

ROCE, % 7 2

Strategic investments

plant and equipment –172 –111

company acquisitions/divestments 1,278 –

Average number of employees 15,218 20,307

Net salesrose4%(20%excludingexchange

rateeffects,divestmentsandclosures)toSEK

29,633m(28,359).Higherpricesandvolumes

increasedsalesby11%and9%,respectively.

TheclosureoftheNewHythetestlinermillinthe

UKin2009,togetherwiththedivestmentofthe

Asianpackagingoperationduringthesecond

quarterof2010,reducedsalesby5%.

ThedemandinWesternEuropeforcorrugated

boardimprovedduringtheyearinpacewiththe

recoveryoftheeconomyandrisingindustrialpro-

ductionandrose5%.Liner(containerboard)and

corrugatedboardpricesrosesuccessivelyduring

theyear.

Therestructuringprogrammeinitiatedin2009

wascarriedoutaccordingtoplan.Atotalof16

corrugatedboardplantsandthetestlinerplantin

theUKhavebeenclosed,andpersonnelreduc-

tionscorrespondingtoapproximately2,100posi-

tionshavebeencarriedout.Byyear-end2010,

theentireprojectedannualsavingsofslightly

morethanSEK1bnhadbeenachievedonan

annualbasis.

TheAsiancorrugatedboardoperation,with

salesofUSD250mandabout4,200employees

at15plantsinChina,Singapore,Malaysiaand

Indonesia,wasdivestedduringtheyear.The

salespriceamountedtoUSD200m.Thesaledid

notgenerateacapitalgainorloss.Theoperations

weredeconsolidatedattheendofApril.

Inlinewiththestrategytogrowwithinhigh-

valuesegmentinpackaging,SCAdeveloped

Truefloduringtheyear,asystemdesignedand

developedspecificallyasaone-tripsolutionfor

theefficientandsecurebulkshipmentofliquids

andsemi-liquids.Thesystemisconstructedin

fullyrecyclableall-virginmaterialsandisdelivered

flat.Thecontaineriseasilyassembledbyone

person,andofferssuperiorstrengthanddurabil-

ity,enablingittobestackedintransitandstor-

age.Thebagcanbecustomisedtosuitvarious

applications,andthepositioningofthedischarge

valveatpalletlevel,whereitisprotectedduring

transit,alsopromotes100%dischargeofthe

contents.

SCAalsolaunchedZeoCool,atemperature-

controlledpackaging.Controllingtheinternal

payloadspacebyreactingtotheexternalambi-

enttemperature,ZeoCoolmaintainscomplete

productintegrityof+2°Cto+8°C.Amongother

applications,ZeoCoolisdesignedforshipping

pharmaceuticalandmedicinalproductsrequiring

lowtemperaturesduringshipping.ZeoCool

eliminatestheneedforconditioningcoolants

withfridgesandfreezers,reducingspacerequire-

ments,operationalcostsandsavingtime.Zeo-

Coolisidealforallmodesoftransport,air,sea

androad.

Operating profitrosesharplyandamountedto

SEK1,577m(413).Theincreaseismainlyattribut-

abletohigherpricesandvolumes,andsavings

fromtherestructuringprogramme.Higherraw

materialcostsandexchangerateeffectshada

loweringeffectonprofit.

Operating marginwas5.3%(1.5).

Return on capital employedamountedto7%(2).

Operating cash surplusimprovedtoSEK

2,921m(2,047),andoperatingcashflowwasSEK

1,168m(864).Ahigherleveloftied-upworking

capitalwaspartlycompensatedbyalowerlevel

ofcurrentcapitalexpenditures.

Capital expendituresamountedtoSEK1,195m

(1,268).

Excluding restructuring costs.

Board of Directors’ Report|SCAAnnualReport2010 31

Packaging|Business areas

Page 36: SCA Annual Report 2010 En

Forest Products

Net sales, 15%

SEK 17,123mCapital employed, 31%

SEK 31,475mOperating profit, 25%

SEK 2,455mAv. no. of employees, 9%

4,186 employees

Net sales Margin

SEKm %

0

5,000

10,000

15,000

20,000

201020092008200720060

5

10

15

20

Net sales and operating margin

SEKm

0

500

1,000

1,500

2,000

2,500

3,000

3,500

20102009200820072006

Operating cash flow

Operating profit ROCE

SEKm %

0

500

1,000

1,500

2,000

2,500

3,000

201020092008200720060

2

4

6

8

10

12

Operating profit and ROCE

Share of GroupFinancial targets• 11%returnoncapitalemployed

Outcome 2010• Growth1)3%

• Returnoncapitalemployed8%

• Operatingmargin14%

1) Excluding exchange rate effects.

SCAAnnualReport2010|Board of Directors’ Report32

Page 37: SCA Annual Report 2010 En

Forest Products

SCA is one of Europe’s most profitable producers of forest products based on its in-depth customer insight, high innovative ability, efficient production, high value-added products, integration with SCA’s own wood raw material and a sustainability perspective at all levels. Forest Products offers its customers magazine paper, newsprint, pulp, wood components for building construction and furniture manufacturing, customised wood products for the building trade, solid-wood products and biofuel. SCA is Europe’s largest private forest owner.

Market and brandsSCAisEurope’slargestprivateforestownerwith

aholdingof2.6millionhectaresofforest,of

which2.0millioniscultivated.SCAisthesixth-

largestpublicationpapersmanufacturerandthe

third-largestsolid-woodproductsmanufacturer.

Forestproductsprimarilyconductsoperations

undertheSCAbrandbutalsoworkswithproduct

brands.Lunaisastrongbrandforapulpgrade

withhighabsorptioncapacity.GraphoVerdeisa

high-qualitymagazinepaperwithmorethan50%

recycledfibreandGraphoMaxisanuncoated

publicationpapergradebasedentirelyonfresh

fibre.TheprintingcharacteristicsofGraphoMax

areveryimpressive,makingthepapergradeideal

foradvertisingmaterialsinparticular.

Production and efficiencyManufacturingtakesplaceatSCA’s17facilitiesin

threecountries.Havingitsownlogisticsispartof

thecompany’sintegrationstrategy,withloading

andunloadingterminalsinSwedenandonthe

Strategic priorities: • Rationalisationandefficiencyenhance-

menttoachievehigherprofitability.• Highershareofvalue-addedandcus-

tomisedproductsinpublicationpapersandsolid-woodproducts.

• Greaterrawmaterialintegration• UtilisethecommercialstrengthofSCA’s

leadingpositionintheenvironmentalarea,forexample,inrenewablerawma-terialsandrecyclableproducts.

• Capitaliseonthepotentialofenergyproductionandeffectiveenergysolu-tionsavailableinSCA’sextensivehold-ingsofforestsandforestlandandintheindustry’sprocessesandby-products.

• Gradualexpansionofthepulpoperations.

continentandfreighttransportationonvessels.

SCA’sforestassetsarelocatedinnorthernSwe-

den,wheretheGrouphasbuiltupanefficient

supplysystemforitsownmillsandsawmills.The

company’sforestholdingsaremanagedonavery

long-termbasis.IntegrationofSCA’sownwood

rawmaterialisakeyaspectofthecompany’s

strategythatcontributestostablecashflowand

reliablesupplies,andfacilitatesqualityandcost

control.SCA’sforestholdingsarebecoming

increasinglyimportantascompetitionfortimber

rawmaterialinnorthernEuropeintensifiesand

demandforbiomassfromtheenergysector

grows.

Productive,cost-effectiveproductionplants–

andnotnecessarilyahighmarketshare–area

preconditionforfavourableprofitability.Asa

result,SCAapplieswhatisreferredtoasthe

strong-millconcept,whichfocusesresourceson

anumberoflarge,high-techpaperandpulpmills

andsawmills.Theconcentrationofresourcesand

know-howcreatesaplatformforvalue-building

innovation–resultinginmarket-leadingproduct

developmentandmanufacturing.

Innovation and product developmentInnovationisanintegralpartofSCA’sstrategyto

shiftitsoperationstowardsincreasinglydevel-

opedproductsinhigh-valuesegmentsand

towardsmoreattractivecustomerofferings.

Focusisdirectedtofurtherprocessing,customis-

ationinsegmentswithfavourablepricetrends

andgrowthtogainhigherprofitability.Effortsin

thisrespectpermitForestProductstomoveup

thevaluechainandproduceproductsandsolu-

tionswithhighervalueandmargins.Bythis

means,SCAdifferentiatesitselffromtherestof

theindustry,whilealsomeetingrequirements

amongbusinesspartnersandcustomers.

SCAR&DCentreinSundsvall,Sweden,con-

ductsstrategicresearchanddevelopment.The

centrehasspecialistknow-howinkeyareasand

workscloselywithMid-SwedenUniversityin

Sundsvall,whichadjoinstheCentre.

Thepropertiesofthecompany’spublication

papersaredevelopedcontinuously,enablingthe

producttomatchanewspaper’sormagazine’s

profileandmessage.

Insolid-woodproducts,SCAdevelopsand

furtherprocessespurpose-designedproductsfor

interiors,carpentryandthebuildingtrade.All

productsarecustomisedforthenextstageinthe

processingchainandaresupportedbyservices

andwarehousingintegratedintothecustomer’s

distributionandsales.Developmentprogrammes

arenotsolelyfocusedonproducts,butalso

involvethedevelopmentofbusinessmodels,ser-

vice,distributionsolutionsandsoforth.Develop-

mentworkislargelyconductedtogetherwith

customers.

GrowthTheaimforForestProductsistogrowinlinewith

themarket.Continuingtheworkonenhancingeffi-

ciencyandcustomer-driveninnovationisessential

forconsolidatingpositionsandimprovingprofit-

ability.Theprimaryfocusisonincreasingtheshare

ofcustomisedpublicationpapersandsolid-wood

products.Effortstodevelopthevaluechain,make

itmoreefficientandsustainable,anddevelopnew

productareasarealsoimportanttostrengthening

competitiveness.Anewbusinessunit,SCA

Energy,wasstartedin2011todriveanddevelop

SCA’sexpandingbusinessoperationsinrenew-

ableenergy.WorkisprogressingonrealisingSCA’s

windpowerventureviatheagreementwiththe

Norwegianenergycompany,Statkraft,in2007.

Long-termcompetitivenessisalsofavouredby

accesstotheGroup’sownwoodrawmaterialand

SCA’senvironmentalprofile.

Althoughdemandforbothwoodandother

buildingmaterialsdeclinedcomparedwithpre-

financialcrisislevels,woodisstrengtheningits

positionasamaterial.Thefavourableenviron-

mentalandclimate-neutralpropertiesofwood

productsareindemandfromcustomersandhave

alsoresultedinseveralcountriesstimulatinghigh

woodutilisation.Thistrendisexpectedtopersist

andthesupplyofmaterials,ratherthandemand,

Board of Directors’ Report|SCAAnnualReport2010 33

ForestProducts|Business areas

Page 38: SCA Annual Report 2010 En

Publication papers, producers in Europe (capacity)

Stora Enso, 17%

Norske Skog, 10%

Myllykoski, 9%

Holmen, 6%

SCA, 6%

Other, 29%

UPM, 23%

Source: Pöyry, PPPC

Publication papers definitions

LWC paper Light Weight CoatedA coated paper with a high mechanical pulp content. Used for high-quality magazines and advertising materials with demand-ing colour-printing requirements.

SC paper Super Calandered publicationA paper with a high-gloss surface and a high content of mechan-ical and/or recycled pulp. Mainly used for catalogues, magazines and advertising materials.

Newsprint A paper used for newspapers that is based on mechanical pulp from fresh wood fibre or recycled fibre.

willgovernmarkettrendsinwoodproducts.

Demandisexpectedtoincreaseforrenewable

energy,particularlywhentheEUandothercoun-

triesestablishpoliticalmeansforachievingthe

pledgestheyhavemadetolowerfossilcarbon

emissionsandincreaseuseofrenewableenergy.

Publication papersTheEuropeanmarketforpublicationpapers

amountstoSEK140bn.Magazinepaper

accountsforapproximately50%,whilenewsprint

primarilymakesuptheremainder.Thepublication

papersmarketiswell-consolidatedinEurope.

Thefivelargestplayershaveamarketshareof

80%orhigherformostpapergrades.SCAisthe

sixth-largestpublicationpapersmanufacturerin

Europe.SCAistheeighthlargestamongmanu-

facturersofLWCpaperandsixthamongproduc-

ersofSCpaperandnewsprint.

Theexpected,trend-basedmarketgrowthfor

publicationpaperswasadjusteddownwardasa

resultofmoreintensecompetitionforpublicand

advertisingexpendituresfromelectronicmedia.

Magazinepaperisstillexpectedtoshowvolume

growth,however,primarilyinAsiaandSouth

America.Theglobalnewspapermarketisantici-

patedtoremainmorestable,withaslightdipin

EuropeandNorthAmerica.

SCAspecialisesintheprime-qualityseg-

mentsinmagazinepaper–SCandLWCpaper.

Thesepapergradesareusedformagazines,cat-

aloguesandadvancedprintedadvertising,which

areallareasthatofferfavourablelong-termglobal

growth.Thisfocusonqualitysegmentsissup-

portedbythecompany’sin-depthknowledgeof

paperproduction,aswellasitscapacityforinno-

vationandabilitytoselecttherightrawmaterials

forspecificpulpandpapergrades.

InSweden,SCAOrtvikenpapermillcapital-

isesonthehighqualityoftherawmaterialfromits

ownforests.InthesouthernUK,closeto

Europe’slargestconcentrationofpaperconsum-

ers,thejointlyownedcompanyAylesfordNews-

printuses100%recoveredpaperintheproduc-

tionofnewsprint.InAustria,closetothelargefor-

estsofthealpineregionandmajorpopulation

centres,SCALaakirchenutilisesfreshfibrefrom

theforestandrecoveredfibreintheproductionof

high-qualitypublicationpapers.

SCA’ssalesofpublicationpapersaremade

primarilytotheWesternEuropeanmarketandto

majorpublishersofnewspapersandmagazines.

Pulp, timber and solid-wood productsTheEuropeanmarketforsolid-woodproducts

amountstosomeSEK110bn,withdemandpri-

marilyderivingfromtheconstructionandhouse

buildingindustries,whicharerelativelycyclical.

SCAhasfurtherdevelopeditsoperationstowards

processedandcustomised,semi-finishedprod-

uctsandcomponentswithhigh-valuecontentand

morebalanceddemand.SCA’ssawmilloperations

arethethirdlargestinEurope.Theindustryisdom-

inatedbymanysmallandmid-sizedsawmills.

Combined,thefiveleadingsuppliersaccountfor

onlyabout20%oftheEuropeanmarket.

Inthesolid-woodproductsarea,thestrategy

istomovetowardsmorevalue-addedandcus-

tomisedproductsinmarketsthatofferlong-term

growth.SCA’sownrawmaterials,productionand

logisticsexpertise,andclosercooperationwith

customers,generatecompetitiveadvantages.

SCAisaqualifiedsupplierofpurpose-designed

woodproductstoindustryforfurtherprocessing

intosuchitemsaspanels,floors,windows,doors

andfurniture.Finished-woodcomponentsfor

windowmanufacturing,forexample,represent

anothergrowthmarket.Productsforthe“do-it-

yourself”marketsaredeliveredplanedandpre-

packaged.Serviceandadvancedlogisticssolu-

tionsareofkeysignificanceforthebuildingmate-

rialstrade.SCAworksinclosecooperationwith

itscustomersinitsprincipalmarketsinScandina-

via,FranceandtheUK.InItaly,Asia,NorthAfrica

andtheUS,SCAisaspecialisedsupplierwithin

severalnichemarkets.

ForestProductshasanannualpulpcapacityof

520,000tonnes.Approximately40%ofthiscapac-

ityisutilisedwithinSCAfortheproductionoftis-

sueandpublicationpapers.Theremainderissold

toexternalcustomers.Thepulpmarketisexposed

tosignificantmovementsinvolumeandpricedue

tointenseinternationalcompetition.SCAhasposi-

tioneditselfinthehigh-qualitysegmentbasedon

itsexcellentaccesstoandexpertiseinunique

long-fibredNordicwoodrawmaterial.Duringthe

year,aninvestmentinanewlimekilnatÖstrand

pulpmillwasinitiated.Thisinvestmentwillfacili-

tateanincreaseinproductionandlowerthemill’s

emissionsoffossilcarbonemissions.

SCA’sFSC-certifiedforestsaresubstantially

moreproductivetodaythantheywerejustafew

decadesago.Thispermitsanexpansionoffor-

est-basedproduction,includingtheeconomic

productionofbiofuel.SCAisoneofEurope’s

largestsuppliersofforest-basedbiofuels,suchas

treebranches,crowns,stumps,bark,sawdust,

peatandprocessedproducts,suchaspellets

andbriquettes.SCABioNorrinSwedensupplies

householdsandcentralboilerswithpellets,a

marketwithanannualgrowthrateof20%,and

continuestohaveexcellentgrowthprospects.

SCA’spelletsplantinHärnösandisthelargest

inSwedenandthemarketshareinSwedenis

approximately6%.

SCAAnnualReport2010|Board of Directors’ Report34

Business areas|ForestProducts

Page 39: SCA Annual Report 2010 En

Key events

• Newbusinessunitformed,SCAEnergy.

• SalescompanyestablishedinChina.

• Jointly-ownedsawmillcompanyfounded.

• EfficiencyimprovementprogrammecommencedatOrtvikenpapermill.

• Increasedshareofvalue-addedproducts.

Operating profit, SEKm: Operating margin:

2,455 14%

Operations in 2010

SCA’s sales by region

SCA’s sales by product segment

SC paper, 17%

Newsprint, 14%

Solid-wood products, 27%

Pulp, 16%

Timber, 8%

LWC paper, 18%

Asia, 8%

Africa, 2%

North America, 1%

Latin America, 1%

Europe, 88%

Key figures

SEKm 2010 2009

Net sales 17,123 16,983

of which internal 2,471 1,286

Operating cash surplus 3,216 3,233

Change in working capital –706 797

Current capital expenditures –797 –760

Other changes in operating cash flow 147 35

Operating cash flow 1,860 3,305

Operating profit 2,455 2,503

Operating margin, % 14 15

Capital employed 31,475 31,359

ROCE, % 8 8

Strategic investments

plant and equipment –91 –393

company acquisitions/divestments –83 –5

Average number of employees 4,186 4,172

Net salesroseby1%(3%excludingexchange

rateeffects)toSEK17,123m(16,983).Lower

pricesinpublicationpapersoperationsreduced

salesby7%,whilesalesincreasedby6%asa

resultofhigherpricesinpulpandsolid-wood

products.Highervolumesboostedsalesby2%

andacquisitionsby2%.

Europeandemandformagazinepaperand

newsprintroseby6%and2%,respectively,in

2010.SCA’sdeliveriesofFSC-certifiedpublica-

tionpapersincreasedby35%in2010.

Inthepublicationpapersoperations,aneffi-

ciencyimprovementprojectcommencedatOrt-

vikenpapermillduringtheyear.Theproject

entailsabouta10%decreaseintheworkforce.

Oncefullyimplemented,annualsavingsareesti-

matedtoamounttoSEK45m.

GraphoMax,anuncoatedpublicationpaper

gradebasedentirelyonfreshfibreandwithvery

impressiveprintingcharacteristics,waslaunched

duringtheyearandwasverywellreceivedby

customers.

Insolid-woodproducts,SCAandPersson

Investformedajointlyownedsawmillcompanyin

Sweden,GällöTimberAB.Thenewcompany

encompassesthreesawmills,oneofwhichwas

formerlyownedbySCA.GällöTimberABadds

netsalesofapproximatelySEK500monayearly

basisandannualvolumeofapproximately

230,000m3ofsolid-woodproducts.

Furthermore,adecisionwasmadetoinvest

SEK250mintheTunadalsawmill.Theinvestment

wasprimarilymadeinanewlogsortinglineand

willyieldanannualincreaseinproductionof

140,000m3ofsprucewoodproducts.Theinvest-

mentincreasesSCA’sshareofvalue-addedand

customisedproducts.Inaddition,aplantwas

inauguratedinKramforsforthemanufactureof

theIKEA’sGormshelvingunit.Theplantwillpro-

duceonemillionpre-packagedsolid-wood

shelvesperyearfordeliverytoIKEAstoresin

northernEurope.

Duringtheyear,asalescompanyforsolid-

woodproductswasestablishedinChina,the

second-largestimporterofsolid-woodproducts

aftertheUS.SCA’ssalestoChinahaverisenin

recentyearsandtheestablishmentofthiscom-

panyprovidesfavourableconditionsforcontin-

uedexpansion.

Anewbusinessunit,SCAEnergy,was

formed.Inadditiontowindpower,theunit

encompassestheexistingbusinessoperationsof

forest-basedfuelandfuelpelletsandwillassume

responsibilityforthedevelopmentofnewbusi-

nessopportunitiesintheenergysector.

WorkisprogressingonrealisingSCA’swind

powerventureviatheagreementwiththeNorwe-

gianenergycompany,Statkraft,in2007.Theproj-

ectinvolvessixwindfarmswithatotalofabout

450windturbinesandproductionof2.4TWhper

year.Theprojectiscurrentlysubjecttoenviron-

mentalcourtproceedings.SCAhasmajoraddi-

tionalpotentialforexpansioninwindpower.

Some64windturbinesalreadyproducepoweron

SCA’sland.Windpowerisanexampleofanew

areaofapplicationforSCA’sforestassets.

Operating profitdeclinedby2%toSEK2,455m

(2,503).Apositivetrendwasnotedinpulpand

solid-woodproducts,primarilyduetoprice

increases,whichimprovedearnings.Rawmate-

rialcostsroseinpublicationpapers,whilethe

pricesofSCA’sownproductswerelower,which

ledtoadecreaseinprofit.Productivityimprove-

mentshadapositiveimpactonearnings.

Exchangerateeffectshadasubstantialnegative

impact.

Operating marginwas14.3%(14.7).

Return on capital employedwas8%(8).

Operating cash surpluswasinlinewiththepre-

cedingyearatSEK3,216m(3,233),whileoperat-

ingcashflowdeclinedtoSEK1,860m(3,305).

Thedecreaseismainlyduetochangesininven-

toriesresultingfromhigherrawmaterialsprices.

Capital expenditurestotalledSEK888m(1,153).

Excluding restructuring costs.

Board of Directors’ Report|SCAAnnualReport2010 35

ForestProducts|Business areas

Page 40: SCA Annual Report 2010 En

• ArticlesofAssociation

• SwedishCodeofCorporateGovernance

• InformationfromAnnualGeneralMeetingsinpreviousyears,since

2004(notices,minutes,President’sspeechesandpressreleases)

• InformationfromtheNominationCommittee,since2006(composi­

tion,proposalsandwork)

• Informationaheadofthe2011AnnualGeneralMeeting(notice,Nomi­

nationCommitteeproposals,Board’sproposalforprinciplesforre­

munerationofthePresidentandotherseniorexecutives,information

routinesfornotifyingattendanceatthemeeting,etc.)

• EarlierCorporateGovernanceReports,since2005

More detailed information at www.sca.com

Information regarding SCA’s ownership structure is presented on page 5.

PresidentSCA’sPresidentandCEOisresponsibleforandmanagestheday­to­dayadministrationoftheGroupandfollowstheBoard’sguide­linesandinstructions.ThePresidentandCEOissupportedbytheExecutiveVicePres­ident,whoisalsotheCFO,andtheCorporateSeniorManagementTeam,seepage43,whoseworktheCEOleads.TheCorporateSeniorManagementTeamconsistsofthePresident,theExecutiveVicePresident,Busi­nessGroupPresidentsandtheequivalent,andmanagersforthecorporatestaffsFinance,Communications,StrategyandBusinessDevelopment,Sustainability,HRandLegalAffairs.Inaddition,thehygienebusinesshasaseparatemanagementbody.TheformalworkplanfortheBoardofDirec­torsandtermsofreferenceissuedbytheBoardofDirectorstothePresidentdetail,forexample,thedivisionofworkbetweentheBoardandPresident.InconsultationwiththeChairmanoftheBoard,thePresidentpre­paresdocumentationanddecisiondatafortheBoard’swork.

SCAconsistsoffourbusinessareas(Per­sonalCare,Tissue,PackagingandForestProducts),whicharedividedintosixbusinessgroups.TheGroupalsohasaglobalunitforcategorycontrol(brand,innovationandtech­nology),GlobalHygieneCategory(GHC),whichleadsandcoordinatestheseissuesinthehygienebusiness.

SCA’sbusinessgroupsadheretotheprin­cipleofdistinctdecentralisationofresponsi­bilityandauthority.Thebusinessgroupsarefullyresponsiblefordevelopingtheirrespec­tiveoperationsthroughestablishedgoalsandstrategies;aprocessthatisalsocentrallycoordinated.Thebusinessgroupsareresponsiblefortheiroperatingresult,capitalandcashflow.ThepositionofthebusinessandresultsarefollowedupbytheentireCor­porateSeniorManagementTeamonamonthlybasis.Eachquarter,businessreviewmeetingsareconductedwherethemanage­mentofeachbusinessgrouppersonallymeetsthePresident,theCFOandothers.Thesemeetingsfunctionasacomplementtothedailymonitoringofoperations.Throughformalworkplansandtermsofreference,anumberofissuesofmaterialsignificanceareplacedunderthecontroloftheCEOandtheParentCompany’sBoardofDirectors.

Governance for long-term competitiveness SCAinitscurrentform,withoperationsin100countries,ownproductioninabout40

countriesandwithfourbusinessareas,imposesrigorousdemandsonresponsibility

andgovernance.TheultimateaimofgovernanceatSCAistosecuretheGroup’scom­

mitmentstowardsallitsstakeholders:shareholders,customers,suppliers,providers

ofcredit,societyandemployees–commitmentsthatareexpressedinthecompany’s

businesstargetsandstrategies.

Fromastrategicandbusiness­drivenperspective,responsibilityandgovernance

takeonotherdimensions.SCA’sviewisthatbyachievingsuccessthroughgover­

nance,theGroupisalsoguidedtowardsmoreeffectivecontrol.Thecompany’sbusi­

nessprocessesshallrepresentthefocalpoint,withasetofrulesandregulationsthat

notonlysupportthese,butaredistinctlyintegratedinthebusinessoperation.

Severalinitiativeshavebeentakentosimplifyandfocusinternalgovernanceand

theinternalrulesandregulations.Centraltothisworkhasbeen:

• thatgovernanceandrulesandregulationsarehighlycommerciallyfocusedon

businessgoalsandstrategies,

• thattheGroup’srisksarethoroughlyanalysedandgroundedinthebusiness

strategyandgovernancework,bothataBoardandoperationallevel,andthat

• follow­upandevaluationworkisconductedwithahighdegreeofqualityand

congruity.

Corporate governance, including remuneration, pages 36–43ThissectiondescribestherulesandregulationsandtheGroup’scorporategover­

nance,includingadescriptionoftheoperationalorganisation.ItalsodetailstheBoard

ofDirectors’responsibilitiesanditsworkduringtheyear.Informationregardingremu­

nerationandremunerationissuesinSCAandinternalcontrolintheGrouparealso

includedhere.SCAappliestheSwedishCodeofCorporateGovernancewithoutany

deviations.

Risk management, pages 44–49SCA’sprocessestoidentifyandmanagerisksarepartoftheGroup’sstrategywork

andarepursuedatalocalandGroup­widelevel.Thesectiondealingwithriskman­

agementdescribesthemostsignificantrisks,andthepoliciesandmeasuresthatthe

Groupappliestomanagethese.

Sustainability, pages 50–53SCA’ssustainabilityworkisanintegralpartofthecompany’sbusinessoperationand

values.Inthesamewayasgovernanceandresponsibilityarebasedontargetsand

strategies,sustainabilityactivitiesalsoappliesthisapproach.Thishelpsthecompany

toreduceriskandcosts,strengthencompetitivenessandattracttalentandinvestors.

SCAAnnualReport2010|Board of Directors’ Report36

Responsibility and governance|CorporateGovernance

Page 41: SCA Annual Report 2010 En

Governance at SCA

Internal rules and regulations, etc.• Articlesofassociation• FormalworkplanoftheBoardofDirectors• TermsofreferenceissuedbytheBoardtothe

President• Policydocuments(e.g.financial,communications,

riskmanagement,pension,HR)andinstructions(paymentauthorisationandpayment)

• CodeofConduct

External rules and regulation, etc.• TheSwedishCompaniesAct• Swedishandinternationalaccountinglegislation• NasdaqOMXStockholm’srulesandregulations• SwedishCodeofCorporateGovernance

President and CEO

Executive Vice President

Remuneration Committee

Corporate Staffs

Business Group Presidents

* Global Hygiene Category (GHC) was established to manage innovation, brand strategy and tech nology for the Group’s hygiene business.

Annual General Meeting

External auditorsThecompany’sauditors,electedattheAnnualGen­eralMeeting,examineSCA’sannualreportandcon­solidatedfinancialstatements,theBoard’sandPresident’sadministrationandtheannualreportsofsubsidiaries,andsubmitanauditreport. TheauditisperformedinaccordancewiththeSwedishCompaniesActandauditingstandardsinSwedenasstipulatedbyFARSRS,whichisbasedoninternationalauditingstandardsaccordingtotheInternationalFederationofAccountants(IFAC).

Internal auditAtSCA,itistheresponsibilityofallemployeestoensureeffectiveinternalgovernanceandcontrolintheoperationorprocessforwhichtheyarerespon­sible.Since2006,internalauditisaseparatefunc­tionwiththetaskofevaluatingandimprovingeffi­ciencyinSCA’sinternalgovernanceandcontrol,aswellasitsriskmanagement.Thefunctionhas12employeesandthemanagerreportstotheAuditCommitteeandtheBoardregardinginternalauditmattersandtotheCFOwithrespecttoothermat­ters.TheinternalauditorsaregeographicallylocatedthroughouttheworldwhereSCAconductsopera­tions.Thefunctionexamines,amongotheraspects,SCA’sinternalprocessesforordering,invoicing,pur­chasingandfinancialreporting,ITsystems,compli­ancewithSCA’spolicies,includingitsCodeofCon­duct,HRissuesandvarioustypesofprojects.Thefunctionalsooffersinternaladvisoryservicesincon­nectionwithinternalcontrolmatters.

Nomination Committee External auditors

Internal audit

Chairman of the Board

Board of Directors

Board of DirectorsTheBoardofDirectorshasoverallresponsibilityforthecompany’sorganisationandadministrationthroughregularmonitoringofthebusinessandbyensuringtheappropriatenessoftheorganisation,managementteam,guidelinesandinternalcontrol.TheBoardapprovesstrategiesandtargets,anddecidesonmajorinvestments,acquisitionsanddivestmentsofoperations. InaccordancewiththedecisionoftheAGM,theBoardofDirectorsshallcompriseeightmemberselectedbytheAnnualGeneralMeetingwithnodeputies.Inaddition,Boardmembersshallincludethreemembersandthreedeputiesappointedbytheemployees.

Chairman of the BoardTheChairmanoftheBoardleadstheworkoftheBoardandisresponsibleforensuringthatitiseffec­tivelyorganisedandthatworkisefficientlycon­ducted.Thisincludescontinuouslymonitoringthecompany’soperationsinclosedialoguewiththePresidentandCEOandensuringthatotherBoardmembersreceiveinformationanddecisiondatathatwillenablehigh­qualitydiscussionanddecisionsbytheBoard.TheChairmanleadstheassessmentoftheBoard’sandthePresident’swork.TheChairmanalsorepresentsthecompanyinownershipmatters.

Annual General MeetingTheAnnualGeneralMeeting(AGM)isSCA’shighestdecision­makingbody,whichallshareholdersareentitledtoattendtohaveamatterconsideredandtovoteforallsharesheldbytheshareholder.Thecompany’sBoardofDirectorsiselectedattheAGM.TheAGMalsoappointsthecompany’sauditors

Audit CommitteeThetasksoftheAuditCommittee,whichisnotauthorisedtomakedecisions,includemonitoringfinancialreportingandtheefficiencyofthecompa­ny’sinternalcontrol,internalauditandriskmanage­ment.Thecommitteekeepsitselfinformedontheaudit,reviewsandmonitorstheimpartialityandindependenceoftheauditors,andcontributespro­posalsfortheAGM’selectionofauditors.

Audit Committee

Remuneration CommitteeTheRemunerationCommittee,whichisnotautho­risedtomakedecisions,draftstheBoard’smotionsinissuesrelatingtoremunerationprinciples,remu­nerationandothertermsandconditionsofemploy­mentforthecompany’sseniorexecutives.Thecom­mitteemonitorsandassessesprogrammesforvari­ableremuneration,theapplicationoftheAGM’sres­olutiononguidelinesforremunerationofseniorexecutivesandtheapplicableremunerationstruc­tureandremunerationlevelsintheGroup.

Nomination CommitteeTheNominationCommitteerepresentsthecompany’sshareholdersandischargedwiththesoletaskofdraftingproposalsforadop­tionattheAnnualGeneralMeetingwithrespecttoelectionandremunerationmattersand,incertaincases,proposingproceduralmotionsforthenextNominationCommittee.

SCA Asia

Pacific

SCA Americas

SCA Tissue Europe

SCA Personal

Care Europe

SCA Forest

Products

SCA Packaging

EuropeGHC*

Board of Directors’ Report|SCAAnnualReport2010 37

CorporateGovernance|Responsibility and governance

Page 42: SCA Annual Report 2010 En

Activities during the year

Annual General MeetingTheAGMwasheldonMonday,26April2010,in

Sundsvall,Sweden.Themeetingwasattended

by796shareholders,eitherpersonallyorby

proxy,correspondingto61.1%ofvotesinthe

company.Attorney­at­LawSvenUngerwas

electedChairmanoftheMeeting.

Resolutions by the meeting• dividendofSEK3.70(3.50)persharetobe

paidforthe2009financialyear,

• re­electionofBoardmembersRolfBörjesson,

SörenGyll,JanJohansson,LeifJohansson,

SverkerMartin­Löf,AndersNyrénandBarbara

M.Thoralfsson,andtheelectionofPärBoman

asanewBoardmember,

• re­electionofSverkerMartin­LöfasChairman

oftheBoard,

• adoptionofguidelinesfordeterminingthesal­

aryandotherremunerationofthePresident

andotherseniorexecutives,seepage40and

Note6onpage71.

Theminutesofthemeetinginfullandinformation

onthe2010AGM,includingthePresident’s

speech,canbeaccessedatwww.sca.com

Nomination CommitteeThe2010AGMdecidedthattheNomination

Committeeforthe2011AGMshouldcomprise

representativesofnotfewerthanfourofthelarg­

estandnotmorethanthesixofthelargestshare­

holdersintermsofvotingrights,aswellasthe

ChairmanoftheBoard,whoisalsotheconvener.

TheNominationCommitteeshallsubmitpropos­

alsrelatingtotheChairmanoftheMeeting,the

BoardofDirectors,theChairmanoftheBoard,

Boardfeesandremunerationforcommitteework,

feesforthecompany’sauditors,andproposalsto

theNominationCommitteepriortothe2012

AGM.Initswork,theNominationCommitteeshall

considertherulesthatapplytotheindependence

ofBoardmembersandthattheselectionfor

thosenominatedshallbebasedonexpertiseand

experiencerelevanttoSCA.

Composition of the Nomination Committee for

the 2011 AGM

ThecompositionoftheNominationCommittee

forthe2011AGMisasfollows:

• Carl­OlofBy,ABIndustrivärden,Chairman

oftheNominationCommittee

• HåkanSandberg,HandelsbankenPension

Foundation,amongothers

• PontusBergekrans,SEBFunds

• TorbjörnCallvik,SkandiaLiv

• BoSelling,Alecta

• SverkerMartin­Löf,Chairmanofthe

BoardofSCA

Allshareholdershavehadanopportunitytosub­

mitproposalstotheNominationCommittee.The

NominationCommittee’sproposalsforthe2011

AnnualGeneralMeetingarepresentedinthenoti­

ficationoftheAGMandonSCA’swebsitewww.

sca.com.The2011AGMwillbeheldon7April,

seepage104.

TheNominationCommitteewasconvenedon

threeoccasions.TheChairmanoftheBoardpre­

sentedtheBoardevaluation,whichisconducted

annually,andprovidedtheNominationCommit­

teewithinformationregardingBoardandcom­

mitteeworkduringtheyear.

Board of DirectorsSCA’sBoardofDirectorscompriseseightmem­

berselectedbytheAnnualGeneralMeeting.

BoardmembersRolfBörjesson,SörenGyll,

JanJohansson(SCA’sPresidentandCEO)Leif

Johansson,SverkerMartin­Löf,AndersNyrén

andBarbaraM.Thoralfssonwerere­electedto

theBoard.PärBomanwaselectedasanew

Boardmember.SverkerMartin­Löfwaselected

asChairmanoftheBoard.

TheindependenceofBoardmembersispre­

sentedinthetablebelow.SCAcomplieswiththe

requirementsoftheSwedishCodeofCorporate

Governancethatstipulatethatnotmorethanone

memberelectedbytheAGMshallbeamember

of companymanagement,thatthemajorityof

thememberselectedbytheAGMshallbeinde­

pendentinrelationtocompanyandcompany

management,andthatnotfewerthantwoofthese

shallalsobeindependentinrelationtothecom­

pany’smajorshareholders.AlloftheBoardmem­

bershaveexperienceoftherequirementsincum­

bentuponalistedcompany.Theemployeeshave

appointedthefollowingthreerepresentatives

totheBoard:LarsJonsson,ÖrjanSvenssonand

ThomasWiklund,andtheirdeputies,Anders

Engqvist,Bert­IvarPetterssonandHarrietSjöberg.

Board activities

In2010,theBoardwasconvenedninetimes.At

allBoardmeetings,thePresidentheldapresen­

tationofthefinancialandmarketposition.In

addition,theestablishedformalworkplan

encompassesanumberofseparatepoints,such

astheadoptionoftheinterimreportsandthe

annualreport.Onaregularbasisthroughoutthe

year,theBoardhasdealtwithreportsfromthe

AuditandRemunerationCommitteesandreports

Classification of the largest shareholders, Nomination Committee 2011 (share of votes)

%

AB Industrivärden 29.3

Handelsbanken Pension Foundation, among others 13.8

SEB Funds 5.3

Skandia Liv 3.7

Alecta 2.3

Board of Directors and committees

Committee Attendance

Board member Elected Inde pendent1) Audit Remun­eration

Board meetings

Audit Committee

Remuneration Committee

Pär Boman 2010 n 7/7

Rolf Börjesson 2003 x 9/9 2/2

Sören Gyll 1997 x 8/9 5/6

Jan Johansson 2008 n 9/9

Leif Johansson 2006 x 9/9 2/2

Sverker Martin-Löf, chairman 1986 n x Chair 9/9 6/6 2/2

Anders Nyrén 2001 n Chair 8/9 6/6

Barbara Milian Thorlafsson 2006 9/9

1) As defined in the Swedish Code of Corporate Governance.

n = Dependent in relation to the company’s major shareholder, AB Industrivärden.

n = President of SCA, dependent in relation to the company and the Corporate Senior Management Team, and in relation to the company’s major

shareholder, AB Industrivärden.

n = Dependent in relation to company management.

SCAAnnualReport2010|Board of Directors’ Report38

Responsibility and governance|CorporateGovernance

Page 43: SCA Annual Report 2010 En

oninternalcontrolandfinancialoperations.The

company’sauditorspresentedareportontheir

auditworkduringtheyearandtheseissueswere

discussed.

In2010,theBoard’sactivitieswerealsochar­

acterisedbyprospectiveissuesofcentralimpor­

tance.Agreatdealofattentionwaspaidtostrate­

gicissuesandthedevelopmentofoperationsin

theGroup’sgrowthmarkets.

Ondifferentoccasions,BusinessGroupPresi­

dentsandseniormanagersheldpresentationsof

theiroperations.

AtthefinalBoardmeetingoftheyear,the

Boardapprovedtheoperationalstrategyandthe

financialplanfortheperiod2011–2012.

Evaluation of the Board’s work

TheworkoftheBoard,likethatofthePresident,

isevaluatedannuallyusingasystematicand

structuredprocess,thepurposeofwhichisto

obtainasoundbasisfortheBoard’sowndevel­

opmentworkandtoprovidetheNomination

Committeewithacertainamountofdecisiondata

toassistinitsnominationwork.TheChairmanof

theBoardisresponsiblefortheevaluation.In

2010,theevaluationtooktheformofaquestion­

naireanddiscussionsbetweentheChairmanof

theBoardandthemembers.Theevaluationcov­

erssuchareasastheBoard’smethodofwork,

expertiseandtheyear’swork.TheBoardwas

providedwithfeedbackaftertheresultswere

compiled.TheNominationCommitteewasalso

informedoftheresultsoftheevaluation.

Audit Committee

In2010,theAuditCommitteecomprisedChair­

manAndersNyrén,SörenGyllandSverker

Martin­Löf.TheAuditCommitteeheldsixmeet­

ingsin2010.Initsworkthatincludesmonitoring

financialreporting,thecommitteedealtwithrele­

vantaccountingissues,internalauditors’reviews,

auditingworkandareviewofvariousmeasure­

mentissues,suchastestingofimpairment

requirementsforgoodwill,themeasurementof

forestassetsandthepreconditionsfortheyear’s

pensionliabilitycalculations.

Remuneration Committee

TheRemunerationCommitteeconsistsofChair­

manSverkerMartin­Löf,LeifJohanssonandRolf

Börjesson.TheRemunerationCommitteeheld

twomeetingduringtheyear.Inaddition,anum­

berofissueswereaddressedbycircularletter,for

example,inconnectionwithvariousmanagement

changes.Activitiesin2010mainlyconcerned

remunerationandotheremploymenttermsand

conditionsforseniorexecutives,andcurrent

remunerationstructuresandremunerationlevels

intheGroup.

Internal auditThebasisoftheworkisariskanalysisconducted

incooperationwithSCA’smanagementteam.The

riskanalysisconcludesinanauditplan,whichis

presentedtotheAuditCommittee.In2010,about

110auditprojectswereperformed.Duringthe

year,thefunctionreporteditsobservationsat

eachmeetingwiththeAuditCommitteeandon

oneoccasiontotheBoardofDirectorsofSCA.

Workin2010alsoinvolvedfollowingupthe

units’progresswithprocess­basedcontrol,fol­

low­upandreportingoftheefficiencyininternal

governanceandcontrol,andseparateassess­

mentsoftheinternalcontrolincountrieswhere

SCAhasmajorinvestmentsandinjointventures.

External auditorsThe2008AnnualGeneralMeetingappointedthe

accountingfirmofPricewaterhouseCoopersAB

asthecompany’sauditorsforamandateperiod

offouryears.Theaccountingfirmnotifiedthe

companythatAndersLundin,AuthorisedPublic

Accountant,wouldbetheseniorauditor.Anders

LundinisalsoauditorforAarhusKarlshamnAB,

ElectroluxAB,HusqvarnaAB,ABIndustrivärden,

MelkerSchörlingABandLoomisAB.Theauditor

holdsnosharesinSCA.

Inaccordancewithitsformalworkplan,the

Boardmetwiththeauditorsatthreeregular

Boardmeetingsin2010.Theauditorsalso

attendedeachmeetingoftheAuditCommittee.

Atthesemeetings,theauditorspresentedand

receivedopinionsonthefocusandscopeofthe

plannedauditanddeliveredverbalauditand

reviewreports.Furthermore,attheBoard’sthird

regularautumnmeeting,theauditorsdeliveredan

in­depthverbalreportontheauditfortheyear.

Theformalworkplanspecifiesanumberofman­

datoryissuesthatmustbecovered.These

includemattersofimportancethathavebeena

causeforconcernordiscussionduringtheaudit,

businessroutinesandtransactionswherediffer­

encesofopinionmayexistregardingthechoice

ofaccountingprocedures,aswellasaccounting

forconsultancyworkassignedtotheauditfirmby

SCAandtheauditfirmsindependenceinrelation

tothecompanyanditsmanagement.Oneach

occasion,Boardmembershavehadanopportu­

nitytoasktheauditorsquestions.Certainpartsof

thedetaileddiscussionontheaccountstake

placewithoutrepresentativesofcompanyman­

agementbeingpresent.

Board and Committee meetings

Board of Directors

Audit Committee

Remuneration Committee

jAN FEB MAR APR MAy juN jul AuG SEP OCT NOV DEC

Board of Directors’ Report|SCAAnnualReport2010 39

CorporateGovernance|Responsibility and governance

Page 44: SCA Annual Report 2010 En

Remuneration, Corporate Senior Management and Board of Directors

GuidelinesThe2010AnnualGeneralMeetingadopted

guidelinesforremunerationofseniorexecutives

thatarebasedonatotalremunerationpackage

comprisingafixedsalary,variablesalaryand

otherbenefits,andapension.Theseunchanged

guidelinesarealsoproposedforthe2011AGM,

seepage12.

Thetotalremunerationistocorrespondto

marketpracticeandbecompetitiveinthesenior

executive’sfieldofprofession.Fixedandvariable

remunerationistobelinkedtothemanager’s

responsibilityorauthority.FortheCEO,aswellas

forotherseniorexecutives,thevariableremuner­

ationistobelimitedandlinkedtothefixedremu­

neration.Otherseniorexecutivesincludethe

ExecutiveVicePresident,BusinessGroupPresi­

dentsandCentralStaffManagers.

Thevariableremunerationistobebasedon

theoutcomeofpredeterminedobjectivesand,as

faraspossible,belinkedtotheincreaseinvalue

oftheSCAshare,fromwhichtheshareholders

benefit.Thepensionisnottobebasedonvari­

ableremuneration.Programmesforvariable

remunerationshouldbeformulatedsothatthe

Board,ifexceptionalcircumstancesprevail,has

thepossibilitytolimit,orrefrainfrom,paymentof

variableremunerationifsuchanactionisconsid­

eredreasonableandincompliancewiththecom­

pany’sresponsibilitytoshareholders,employees

andotherstakeholders.

Pensionbenefitsaretobeeitherdefinedben­

efitordefinedcontribution,oracombinationof

both,andentitletheseniorexecutivetopension

fromtheageof60,attheearliest.Toearnthe

pensionbenefits,theperiodofemploymentmust

belongterm,atpresent20years.Whenresigning

beforetheageprovidingentitlementtopension,

theseniorexecutivewillreceiveapaid­uppen­

sionpolicyfromtheageof60.Mattersofremu­

nerationofseniorexecutivesaretobedealtwith

bytheRemunerationCommitteeand,asregards

thePresident,resolvedbytheBoardofDirectors.

Remuneration of the President and other senior executivesRemunerationofthePresidentandothersenior

executivesispresentedinNote6onpage71.

VariableremunerationfortheCEO,Executive

VicePresidentandBusinessGroupPresidents

wasmaximisedtoatotalof85%ofthefixedsal­

aryfor2010.ForoneBusinessGroupPresident,

stationedintheUS,themaximumoutcomeis

95%,whilethecorrespondinglimitforother

executivesis75%.

Theprogrammeforvariableremunerationis

dividedintoashortandlong­termportion.

• Theshort­termportion(Short­TermIncentive,

orSTI)fortheCEO,ExecutiveVicePresident

andBusinessGroupPresidentsmayamountto

amaximumof50%ofthefixedsalary.Forone

BusinessGroupPresident,stationedintheUS,

themaximumoutcomeis60%,whilethecor­

respondinglimitforotherseniorexecutivesis

40%.In2010,theSTIgoalswerebasedon

cashflow,growthandearningsatbothGroup

andbusinessgrouplevels,andonenon­finan­

cialgoal.For2011,thegoalsarespreadacross

cashflow,operatingprofit,salesgrowthand

costs,aswellasmeasureablenon­financialac­

tivitygoals.Oneexampleisthebusiness­wide

goalthathasbeenestablishedtopromotein­

novationinthehygienebusiness.

• Thelong­termportion(Long­TermIncentive,or

LTI)mayamounttoamaximumof35%ofthe

fixedsalary,providingthattheexecutivein­

vestshalfofthenetoutcomeinthecompany’s

share,andamaximumof25%ifsuchinvest­

mentisnotmade.TheestablishedLTIgoalis

basedonthepriceperformanceofthecompa­

ny’sBsharesmeasuredastheTotalShare­

holderReturn(TSR)index,comparedwitha

weightedindexofcompetitors’sharesaccord­

ingtotheTSRprinciple,overthemostrecent

three­yearperiod.Thecomparativecompanies

areselectedtocorrespondtoSCA’soperations

comprisinghygieneoperations(40%),packag­

ingoperations(30%)andforestoperations

(30%).For2011,thelong­termremuneration

(LTI)willbeabletoamounttoamaximumof

50%ofthefixedsalary.Inreturn,thesenior

executivemustinvesthalfofthevariableLTI

compensation,aftertaxwithholdings,inSCA

shares.Thesharesmaythennotbesoldbefore

theendofthethirdcalendaryearafterentry

intothecurrentLTIprogramme.Thestructure

andessentialtermsandconditionsoftheLTI

wereapprovedbytheBoardin2003.SeeNote

6,page71forfurtherinformation.

Variable remuneration and strategic targets Programmesforvariableremunerationareformu­

latedtosupporttheGroup’sstrategictargets.The

short­termprogrammeisindividuallyadapted

andbasedmainlyoncashflow,operatingprofit

andgrowth.Thelong­termprogrammeisbased

ontheSCAshare’slong­termtotalreturn.

Remuneration of the BoardAccordingtotheresolutionbytheAGM,thetotal

feespaidtotheAGM­electedBoardmembers

wereSEK4,600,000.SeeNote6,page71forfur­

therinformation.

Packaging companies, 30%

Forest companies, 30%

Hygiene companies, 40%

lTI – Comparative companies, shares

Short-Term Incentive

Long-Term Incentive

Fixed salary

Potential maximum remuneration, breakdown

Outcome, SEKm Outcome as a percentage of fixed salary

SEKm %

0

10

20

30

40

201020092008200720060

20

40

60

80

Outcome, variable remuneration, 2006–2010

SCAAnnualReport2010|Board of Directors’ Report40

Responsibility and governance|CorporateGovernance

Page 45: SCA Annual Report 2010 En

Internal control of the financial reporting

TheBoard’sresponsibilityforinternalgovernance

andcontrolisregulatedintheSwedishCompa­

niesAct,theAnnualAccountsActandinthe

SwedishCodeofCorporateGovernance.The

AnnualAccountsActrequiresthatthecompany,

eachyear,describeitssystemforinternalcontrol

andriskmanagementwithrespecttofinancial

reporting.TheBoardbearstheoverallresponsi­

bilityforfinancialreportinganditsformalwork

planregulatestheinternaldivisionofwork

betweentheBoardanditscommittees.

TheAuditCommitteehasanimportanttaskto

preparetheBoard’sworktoassurethequalityof

financialreporting.Thispreparationwork

includesissuesrelatingtointernalcontroland

regulationcompliance,controlofrecognisedval­

ues,estimations,assessmentsandotheractivi­

tiesthatmayimpactthequalityoffinancialstate­

ments.Thecommitteehaschargedthecompa­

ny’sauditorswiththetaskofspecificallyexamin­

ingthedegreeofcomplianceinthecompanywith

therulesforinternalcontrol,bothgeneraland

detailed.

Financial reporting to the BoardTheBoard’sformalworkplanstipulateswhich

reportsandinformationofafinancialnatureshall

besubmittedtotheBoardateachregularmeet­

ing.ThePresidentensuresthattheBoard

receivesthereportsrequiredthatenablethe

Boardtocontinuouslyassessthecompany’sand

Group’sfinancialposition.Detailedinstructions

specificallyoutlinethetypesofreportsthatthe

Boardshallreceiveateachmeeting.

External financial reportingThequalityofexternalfinancialreportingisguar­

anteedviaanumberofactionsandprocedures.

ThePresidentisresponsibleforensuringthatall

informationissued,suchaspressreleaseswith

financialcontent,presentationmaterialformeet­

ingswiththemedia,ownersandfinancialinstitu­

tions,iscorrectandofahighquality.Therespon­

sibilitiesofthecompany’sauditorsinclude

reviewingaccountingissuesthatarecriticalfor

thefinancialreportingandreportingtheirobser­

vationstotheAuditCommitteeandtheBoardof

Directors.Inadditiontotheyear­endreport,the

auditoralsoreviewsthesix­monthreport.

Risk managementWithregardtofinancialreporting,theriskthat

materialerrorsmaybemadewhenreportingthe

company’sfinancialpositionandresultsiscon­

sideredtheprimaryrisk.Tominimisethisrisk,

controldocumentshavebeenestablishedper­

tainingtoaccounting,proceduresforannual

accountsandfollow­upofreportedannual

accounts.AGroup­widesystemforreporting

annualaccountshasalsobeenintroduced.SCA’s

BoardofDirectorsandmanagementassessthe

financialreportingfromariskperspectiveonan

ongoingbasis.Toprovidesupportforthisassess­

ment,thecompany’sincomestatementandbal­

ancesheetitemsarecomparedwithearlier

reports,budgetsandotherplannedfigures.

Controlactivitiesthataresignificanttofinancial

reportingarecarriedoutusingthecompany’sIT

system.Forfurtherinformation,seeRiskandrisk

managementonpages44–49.

Control activities and follow upSignificantinstructionsandguidelinesrelatedto

financialreportingarepreparedandupdatedreg­

ularlybytheGroup’scentralcontrollerorganisa­

tionandareeasilyaccessibleontheGroup’s

intranet.Thecentralcontrollerorganisationis

responsibleforensuringcompliancewithinstruc­

tionsandguidelines.Processmanagersatvari­

ouslevelswithinSCAareresponsibleforcarrying

outthenecessarycontrolmeasureswithrespect

tofinancialstatements.Animportantroleis

playedbythebusinessgroup’scontrollerorgani­

sations,whichareresponsibleforensuringthat

financialreportingfromeachunitiscorrect,com­

pleteanddeliveredinatimelymanner.Inaddi­

tion,eachbusinessgrouphasaFinanceManager

withresponsibilityforeachbusinessgroup’s

financialstatements.Thecompany’scontrol

activitiesaresupportedbythebudgetsprepared

byeachbusinessgroupandupdatedduringthe

yearthroughcontinuousforecasts.

Inrecentyears,SCAhasintroducedastan­

dardisedsystemofcontrolmeasuresinvolving

processesthataresignificanttothecompany’s

financialstatements.Thecontrolsareadaptedto

theoperationalprocessandsystemstructureof

eachunit.Accordingly,eachunitpreparesa

recordoftheactualcontrolstobecarriedoutin

theunitinquestion.Controloftheseprocessesis

assessedthroughself­evaluationfollowedupby

aninternalaudit.Insomecases,SCAhasenlisted

externalhelptovalidatethesecontrolmeasures.

Financialresultsarereportedandexamined

regularlywithinthemanagementteamsofthe

operatingunitsandcommunicatedtoSCA’s

managementatmonthlyandquarterlymeetings.

Beforereportsareissued,resultsareanalysedto

identifyandeliminateanymistakesintheprocess

untiltheannualaccounts.Foradditionalinforma­

tion,seeInternalauditonpage39.

Activities in 2010ActivitiestoimproveITsecurityinthefinancial

systemsthatbeganin2009continuedduringthe

year.Theoutcomeshowedthatasignificant

improvementhadbeenmade.Forsometime

now,theentireSCAGrouphasusedashared

reportingsystemforfinancialstatements.An

increasingnumberofunitswithinSCAarealso

introducingthesamereportingsystem.Another

developmentistheco­locationofaccountingand

reportingofseveralunitsinSharedServiceCen­

ters.Reportingisthusmoreefficientanduniform.

Anumberofthesecentreswereintroduceddur­

ingtheyearintheUSandelsewhere.Aproject

wasinitiatedduringtheyearaimedatreducing

thenumberoflegalentitiesinSCAandthereby

simplifyingthesystemstructures.Afollowupof

theGroup’sprocess­basedcontrolsalsotook

place.Thefollow­upshowedthatthesecontrols

areinplaceatthemajorityofSCA’sunitsandthat

theyfunctionefficiently.

Board of Directors’ Report|SCAAnnualReport2010 41

CorporateGovernance|Responsibility and governance

Page 46: SCA Annual Report 2010 En

Sverker Martin­löf (1943)Tech Lic., Honorary PhDChairman of the Board since 2002, formerly President and CEO of SCA. Chairman of the Board of Industrivärden, SSAB and Skanska. Vice Chairman of Ericsson. Member of the Board of Handelsbanken.Elected: 1986A shares: 3,000 B shares: 77,823Independent of the company and corporate management.

Pär Boman (1961)Engineering and Business/ Economics degreePresident, CEO and member of the Board of Handelsbanken.Elected: 2010A shares: 1,000Independent in relation to SCA’s major shareholders.

Rolf Börjesson (1942)MSc Eng.Chairman of the Board of Ahlsell AB.Member of the Board of Avery Dennison and Huhtamäki Oyj.Elected: 2003B shares: 17,850Independent of the company, corporate management and SCA’s major share-holders.

Sören Gyll (1940)Honorary PhD EngineeringMember of the Royal Swedish Academy of Engineering Sciences (IVA).Elected: 1997B shares: 4,407Independent of the company, corporate management and SCA’s major share-holders.

lars jonsson (1956)Chairman Swedish Paper Workers Union dept. 167 at SCA Graphic Sundsvall AB, Östrand Pulp Mill, Timrå.Member of the Swedish Trade Union Confederation (LO).Appointed: 2005

Örjan Svensson (1963)Senior Industrial Safety Representative at SCA Hygiene Products AB, Edet Bruk, Lilla Edet.Member of the Swedish Trade Union Confederation (LO).Appointed: 2005B shares: 75

Thomas Wiklund (1955)Shift Production Manager and Chairman of Ledarna (Swedish Organisation for Manag-ers) at Munksund paper mill.Member of the Council for Negotiation and Cooperation (PTK).Appointed: 2009

Honorary Chairman

Bo Rydin MSc Econ., Hon PhD Econ., Hon PhD Engineering

Auditors

PricewaterhouseCoopers ABSenior Auditor: Anders Lundin,Authorised Public Accountant.

Secretary to the Board

Anders Nyberg (1951)Master of LawsSenior Vice President, Corporate Legal Affairs, General Counsel.B shares: 34,146

jan johansson (1954)Master of LawsPresident and CEO of SCA. Member of the Board of Handelsbanken.Elected: 2008B shares: 55,000

leif johansson (1951)MSc Eng.President of AB Volvo and CEO. Member of the Board of AB Volvo, Bristol-Myers Squibb Company and the Confederation of Swedish Enterprise. Member of the Royal Swedish Academy of Engineering Sciences (IVA).Elected: 2006B shares: 6,040Independent of the company, corporate management and SCA’s major share-holders.

Anders Nyrén (1954)MSc Econ, MBAPresident of AB Industrivärden and CEO. Chairman of the Board of Sandvik and Vice Chairman of Handelsbanken. Member of the Board of Ericsson, Ernströmgruppen, Industrivärden, SSAB and Volvo. Chairman of the Stock Market Company Association and the Association for Generally Accepted Principles in the Securities Market.Elected: 2001B shares: 1,200Independent of the company and corporate management.

Barbara Milian Thoralfsson (1959)MBA, BA Member of the Board of Electrolux AB, Fleming Invest AS, Norfolier AS and Telenor ASA.Elected: 2006B shares: 3,000Independent of the company, corporate management and SCA’s major share-holders.

Elected by the Annual General Meeting

Appointed by the employees Deputies

Harriet Sjöberg (1946)Chairman, Unionen, SCA Hygiene Products AB, Gothenburg.Member of the Council for Negotiation and Cooperation (PTK).Appointed: 2001B shares: 1,815

Bert­Ivar Pettersson (1955)Works Manager at SCA Graphic Sundsvall AB, Ortviken paper mill, Sundsvall.Member of the Council for Negotiation and Cooperation (PTK).Appointed: 2005

Anders Engqvist (1958)Machine Operator at SCA Packaging Sweden AB, Värnamo.Member of the Swedish Trade Union Confederation (LO).Appointed: 2005

Information regarding individuals’ own and related parties’ shareholdings pertains to the situation on 31 December 2010.

SCAAnnualReport2010|Board of Directors’ Report42

Responsibility and governance|BoardofDirectorsandAuditors

Page 47: SCA Annual Report 2010 En

jan johansson (1954)President and CEOMaster of LawsEmployed since 2007B shares: 55,000

lennart Persson (1947)CFO and Executive Vice President,Head of FinanceBSc BAEmployed since 1987B shares: 38,465

Christoph Michalski (1966)President SCA Global Hygiene Category (as of 31 March 2011)MSc Econ.Employed since 2007B shares: 5,300

Thomas Wulkan (1961)President SCA Personal Care EuropeBSc BAEmployed since 2000

Mats Berencreutz (1954)President SCA Tissue EuropeMSc MEEmployed since 1981B shares: 3,917

Michael Cronin (1958)President SCA Packaging EuropeMarketing graduateEmployed since 2010

ulf larsson (1962)President SCA Forest ProductsBSc ForestryEmployed since 1992B shares: 4,400

Sune lundin (1951)President SCA AmericasMScEmployed since 2008B shares: 3,450

ulf Söderström (1964)President SCA Asia Pacific (as of 31 March 2011)Studies in economics, MBAEmployed since 2009B shares: 2,000

Gordana landén (1964)Senior Vice President, Corporate HumanResourcesBScEmployed since 2008B shares: 1,580

Anders Nyberg (1951)Senior Vice President, Corporate Legal Affairs, General CounselMaster of LawsEmployed since 1988B shares: 34,146

Robert Sjöström (1964)Senior Vice President, Business Development and Strategy (as of 31 March 2011)MSc Econ, MBAEmployed since 2009B shares: 5,000

Kersti Strandqvist (1963)Senior Vice President, CorporateSustainabilityMSc Chem., Tech Lic.Employed since 1997B shares: 297

Camilla Weiner (1968)Senior Vice President, CorporateCommunicationsMSc BAEmployed since 2010

Information regarding individuals’ own and related parties’ shareholdings pertains to the situation on 31 December 2010.

Board of Directors’ Report|SCAAnnualReport2010 43

CorporateSeniorManagementTeam|Responsibility and governance

Page 48: SCA Annual Report 2010 En

Risk and risk management

Risks that can affect target fulfilmentSCA is exposed to a number of risks that could

exert a greater or lesser material impact on the

Group. These risks are generally defined as fac-

tors that impact SCA’s ability to achieve estab-

lished targets for the Group. This applies to both

financial targets and targets in other areas. SCA’s

targets are outlined in the section Strategy, on

pages 6 and 7.

Many of the risks described could have a posi-

tive or negative impact on the Group. This implies

that if risk develops in a favourable manner or if

risk management is successful in counteracting

the risk, target fulfilment could exceed expecta-

tions. From this perspective, risk could also entail

opportunities for SCA. Examples include the GDP

trend and the economic situation, the cost of input

goods, customer and consumer behaviours, and

movements in market prices.

SCA’s structure and value chainSCA’s structure and geographically dispersed

business entails in itself a certain degree of risk

reduction. SCA conducts operations in four busi-

ness areas that deliver to entirely, or partially, dif-

ferent customer segments and end-users. The

various businesses are also affected to a some-

what different degree by the business cycle and

general economic prosperity. The competitive sit-

uation also varies for the different businesses.

SCA’s products are sold through many different

channels and distribution paths.

The operation has a large geographical spread.

Sales are conducted in more than 100 countries

and manufacturing is pursued at about 250 pro-

duction units in some 40 countries. Sales are

often based on local manufacturing.

SCA’s structure also means that the raw mate-

rial flows are, to a certain degree, integrated – from

forest land to the finished consumer products. In

2010, 50% of SCA’s wood raw materials require-

ments were sourced from the Group’s own forests.

The wood fibre is used for SCA’s production of

market pulp, containerboard and publication

papers, in sawmill operations, and for the manu-

facture of tissue. Forest waste from SCA’s activities

is used in biofuel operations. The energy generated

in the production process is used internally or sold.

GDP trend and economic conditions Environmental impact and climate change

Impact of political decisions Changes in the behaviour and attitudes of customers and consumers

Dependence on major customers and distributors

Ris

k SCA’s operations have an impact on air, water, land and biological processes. These effects could lead to costs for restoring the environment. The matter of the economic impact of climate change is also growing in significance.

SCA is affected by political decisions and admi-nistrative regulations in the more than 100 countries in which the Group conducts opera-tions. These relate to general regulations, such as taxation and financial reporting. SCA is also impacted by more specific regulations, such as the granting of permits in accordance with the Environmental Code and reimbursement of expenses in the healthcare system.

Changes in the behaviour and attitudes of custo-mers and consumers could affect demand for certain products and thus profitability. For example, competing substitutes could reduce demand for SCA’s products.

The retail trade is SCA’s single largest customer group and thus exercises considerable influence. SCA also uses other distributors or retailers that could impact the Group. A general consolidation process is taking place in several of SCA’s sales channels, thus increasing dependence on indivi-dual customers. This increase in dependence could result in negative consequences if SCA does not fulfil the demands imposed.

Risk

Pol

icy/

Act

ion A number of years ago, SCA established a

sustainability policy, which details guidelines for the Group’s actions in the areas of environ-mental and social responsibility. Risks are minimised through preventive work in the form of certified environmental management sys-tems, environmental risk inspections in con-junction with acquisitions, and remediation projects in connection with plant closures.

The Group’s large forest holding has an extremely positive environmental effect through the absorption of carbon dioxide. Furthermore, the forest guarantees access to renewable forest raw materials.

Through its extensive Resource Manage-ment System (RMS), SCA monitors how the company utilises energy, water, transports and raw materials. The data is used for inter-nal control and follow-up of established goals. SCA works proactively to decrease its climate footprint by reducing its energy consumption and emissions of greenhouse gases. Continu-ous work is conducted to reduce the already low levels of oil and coal used in the Group, and to increase the proportion of renewable energy, such as wind power. A comprehen-sive description of SCA’s work in this area is provided in the Group’s Sustainability Report.

SCA monitors movements in its business environ-ment, enabling it to evaluate developments and take actions. SCA is a member of national and international trade associations, which comprise the primary bodies for participation in public debates. For issues of importance to the com-pany, SCA can also work directly in cooperation with regulatory bodies and the public. Examples include the project to construct wind turbines on SCA’s land in central Sweden and the regular consultations held with Swedish Sami people regarding cooperation between forestry and rein-deer husbandry.

Another key area for SCA is political develop-ments in the environmental area, where SCA assesses and monitors legislation. Since most of SCA’s operations are located in Europe, the EU is a natural focal point. One example of influence exerted in this area is the EU Waste Directive, where focused lobbying efforts ensured that the final directive did not disadvantage SCA’s corru-gated board boxes, compared with plastic boxes.

SCA works actively to disseminate knowledge regarding various national systems to decision-makers in countries where new structures are being built up. Examples include the development of systems for cost-free prescription of inconti-nence aids in countries where such benefits were not offered in the past.

SCA works proactively to adapt to and influence the behaviour and attitudes of customers and consumers. SCA improves customer insight by studying the attitudes and views of existing and potential consumers. For many of SCA’s business areas, retail is an important customer and distri-bution channel. Consequently, changes in the retail sector attract a great deal of attention.

Another way of being proactive is through inno-vation, including in-house research and develop-ment. A major driving force for innovation compri-ses demands and requests from customers and consumers. Accordingly, development work is often conducted in direct cooperation with custo-mers. An increasingly important factor is greater focus on sustainability with respect to environme-ntal, financial and social factors. Other demands imposed on SCA’s innovation include the desire to create profitable differentiation for SCA’s products range and create value and growth, both for customers and SCA (read more about innovation on pages 16–17). In many countries, the degree of penetration is low, meaning only a small propor-tion of the population use SCA’s products, com-pared with more developed countries. To increase acceptance of products, SCA focuses on matters influencing attitudes and on breaking taboos. This also applies to Europe and North America with regard to such items as incontinence care.

SCA’s customer structure is relatively dispersed, with customers in many different areas of busi-ness. In the retail trade, the prevailing trend is towards increased concentration, which to date has resulted in fewer retail companies at a natio-nal and regional level. This could also present opportunities through closer cooperation. There are still a considerable number of retail compa-nies, which reduces the risk for SCA. SCA also uses distributors, mainly for AFH tissue. A very large number of distributors are active in this seg-ment and the international concentration is relati-vely low.

In 2010, SCA’s ten largest customers accoun-ted for 13% of SCA’s sales. The single largest customer accounted for 2% of sales. Most of these customers were retail companies. The ten largest customers also include some large distri-butors of AFH tissue.

Credit risk in accounts receivable is dealt with in the section Credit risk, on page 49.

Policy/A

ction

SCA’s volume trend is linked to the development of GDP and related factors, including industrial pro-duction, in countries representing SCA’s main mar-

kets. Movements in the GDP trend influence demand for certain SCA products.

SCA has reduced the impact of the general eco-nomic trend by focusing on its hygiene business. Other operations are more sensitive to economic movements.

In 2010, Personal Care and Tissue accounted for 58% of SCA’s sales. Sales to the retail market, which accounts for the bulk of sales of hygiene products, are more dependent on established consumption patterns and distribution than the economic climate. The institutional care and homecare facilities seg-ment for incontinence products is also relatively unaf-fected by the business cycle, although it can be impacted by the public budget situation in certain countries. The segment in the hygiene business that is most sensitive to economic movements is AFH tis-sue, which is affected by the consumption of tissue outside the home, for example, within industry and offices, as well as in the hotel and restaurant industry.

The Packaging business area is more sensitive to economic movements. In 2010, it accounted for 27% of consolidated sales. The volume trend is influ-enced by developments in the food industry (about 45% of volumes) and the manufacturing industry (about 30%). Forest products are also vulnerable to economic movements. Sales of publication papers, representing 8% of SCA’s sales, are affected by movements in business activity in the advertising sector. The relatively cyclical construction and pri-

vate house industries impact SCA’s solid-wood pro-duct business, which accounts for 4% of sales.

For all businesses, it is important that SCA mana-ges the effects of the economic movements that occur by taking actions to reduce costs and by reviewing the capacity and production structure.

Trend within SCA’s key customer segments (Europe, Index in 2000 = 100)

Index

40

60

80

100

120

1009080706050403020100

Retail trade Advertising market (newspapers and

magazines, Germany, France and the UK)

Manufacturing industry

Construction industry

SCA Annual Report 2010 | Board of Directors’ Report44

Responsibility and governance | Risk and risk management

Page 49: SCA Annual Report 2010 En

The market pulp is subsequently used in the pro-

duction of mainly tissue and personal care prod-

ucts. In 2010, some 41% of the pulp requirement

was satisfied by the Group’s own pulp produc-

tion. SCA is also a major player in the recovered

fibre market and in 2010 collected 36% of the

Group’s total recovered paper requirement. This

was primarily used in tissue and packaging oper-

ations, but SCA’s publishing papers business also

used the collected recovered fibre.

Processes for risk managementSCA’s Board determines the Group’s strategic

direction based on recommendations from Cor-

porate Senior Management. The responsibility for

long-term and overall management of strategic

risks follows the company’s delegation scheme,

from the Board to the President, and from the

President to the Business Group Presidents. This

means that most operational risks are managed

by SCA’s business groups at a local level, but are

coordinated when deemed necessary. The tools

for this work primarily comprise continuous

reporting by the business groups and the annual

strategy process, which includes risks and risk

management as part of the process.

SCA’s financial risk management is cen-

tralised, as is the case for the corporate internal

bank for financial transactions of Group compa-

nies and management of the Group’s energy

risks. The financial risks are managed in accor-

dance with the Group’s finance policy, which is

approved by SCA’s Board and, together with

SCA’s energy risk policy, comprises a framework

for management activities. The risks are grouped

and followed up on a regular basis to ensure

compliance with these guidelines. SCA has also

centralised the management of other risks.

SCA has established a corporate internal audit

unit, which ensures that the organisation com-

plies with the Group’s policies.

Risk and risk managementThe most significant risks that impact SCA’s abil-

ity to achieve established targets are presented

on pages 44–49 together with a description of

how these risks are managed.

GDP trend and economic conditions Environmental impact and climate change

Impact of political decisions Changes in the behaviour and attitudes of customers and consumers

Dependence on major customers and distributors

Ris

k SCA’s operations have an impact on air, water, land and biological processes. These effects could lead to costs for restoring the environment. The matter of the economic impact of climate change is also growing in significance.

SCA is affected by political decisions and admi-nistrative regulations in the more than 100 countries in which the Group conducts opera-tions. These relate to general regulations, such as taxation and financial reporting. SCA is also impacted by more specific regulations, such as the granting of permits in accordance with the Environmental Code and reimbursement of expenses in the healthcare system.

Changes in the behaviour and attitudes of custo-mers and consumers could affect demand for certain products and thus profitability. For example, competing substitutes could reduce demand for SCA’s products.

The retail trade is SCA’s single largest customer group and thus exercises considerable influence. SCA also uses other distributors or retailers that could impact the Group. A general consolidation process is taking place in several of SCA’s sales channels, thus increasing dependence on indivi-dual customers. This increase in dependence could result in negative consequences if SCA does not fulfil the demands imposed.

Risk

Pol

icy/

Act

ion A number of years ago, SCA established a

sustainability policy, which details guidelines for the Group’s actions in the areas of environ-mental and social responsibility. Risks are minimised through preventive work in the form of certified environmental management sys-tems, environmental risk inspections in con-junction with acquisitions, and remediation projects in connection with plant closures.

The Group’s large forest holding has an extremely positive environmental effect through the absorption of carbon dioxide. Furthermore, the forest guarantees access to renewable forest raw materials.

Through its extensive Resource Manage-ment System (RMS), SCA monitors how the company utilises energy, water, transports and raw materials. The data is used for inter-nal control and follow-up of established goals. SCA works proactively to decrease its climate footprint by reducing its energy consumption and emissions of greenhouse gases. Continu-ous work is conducted to reduce the already low levels of oil and coal used in the Group, and to increase the proportion of renewable energy, such as wind power. A comprehen-sive description of SCA’s work in this area is provided in the Group’s Sustainability Report.

SCA monitors movements in its business environ-ment, enabling it to evaluate developments and take actions. SCA is a member of national and international trade associations, which comprise the primary bodies for participation in public debates. For issues of importance to the com-pany, SCA can also work directly in cooperation with regulatory bodies and the public. Examples include the project to construct wind turbines on SCA’s land in central Sweden and the regular consultations held with Swedish Sami people regarding cooperation between forestry and rein-deer husbandry.

Another key area for SCA is political develop-ments in the environmental area, where SCA assesses and monitors legislation. Since most of SCA’s operations are located in Europe, the EU is a natural focal point. One example of influence exerted in this area is the EU Waste Directive, where focused lobbying efforts ensured that the final directive did not disadvantage SCA’s corru-gated board boxes, compared with plastic boxes.

SCA works actively to disseminate knowledge regarding various national systems to decision-makers in countries where new structures are being built up. Examples include the development of systems for cost-free prescription of inconti-nence aids in countries where such benefits were not offered in the past.

SCA works proactively to adapt to and influence the behaviour and attitudes of customers and consumers. SCA improves customer insight by studying the attitudes and views of existing and potential consumers. For many of SCA’s business areas, retail is an important customer and distri-bution channel. Consequently, changes in the retail sector attract a great deal of attention.

Another way of being proactive is through inno-vation, including in-house research and develop-ment. A major driving force for innovation compri-ses demands and requests from customers and consumers. Accordingly, development work is often conducted in direct cooperation with custo-mers. An increasingly important factor is greater focus on sustainability with respect to environme-ntal, financial and social factors. Other demands imposed on SCA’s innovation include the desire to create profitable differentiation for SCA’s products range and create value and growth, both for customers and SCA (read more about innovation on pages 16–17). In many countries, the degree of penetration is low, meaning only a small propor-tion of the population use SCA’s products, com-pared with more developed countries. To increase acceptance of products, SCA focuses on matters influencing attitudes and on breaking taboos. This also applies to Europe and North America with regard to such items as incontinence care.

SCA’s customer structure is relatively dispersed, with customers in many different areas of busi-ness. In the retail trade, the prevailing trend is towards increased concentration, which to date has resulted in fewer retail companies at a natio-nal and regional level. This could also present opportunities through closer cooperation. There are still a considerable number of retail compa-nies, which reduces the risk for SCA. SCA also uses distributors, mainly for AFH tissue. A very large number of distributors are active in this seg-ment and the international concentration is relati-vely low.

In 2010, SCA’s ten largest customers accoun-ted for 13% of SCA’s sales. The single largest customer accounted for 2% of sales. Most of these customers were retail companies. The ten largest customers also include some large distri-butors of AFH tissue.

Credit risk in accounts receivable is dealt with in the section Credit risk, on page 49.

Policy/A

ction

Board of Directors’ Report | SCA Annual Report 2010 45

Risk and risk management | Responsibility and governance

Page 50: SCA Annual Report 2010 En

Expansion into new markets Movements in the market price for SCA’s products

Risks at plants Suppliers Cost of input goods Employee-related risks, legal risks and IT risks

Ris

k In recent years, SCA has expanded the operation into new geographic emerging markets outside Western Europe and North America. If the condi-tions differ from those in already established mar-kets, this expansion could involve new risks for SCA.

Movements in the market price of SCA’s products could create large fluctuations in the profitability of the product in question when these movements are not related to changes in costs for SCA.

SCA has a large number of production facilities in some 40 countries and many of these conduct continuous production. Fires, machinery break-downs and other types of harmful incidents could damage the plant in question and also cause deli-very problems.

SCA is dependent on a large number of suppliers. The loss of key suppliers could result in costs for SCA and problems in manufacturing. Suppliers could also cause problems for SCA through non-compliance with applicable legislation and regula-tions or by otherwise acting in an unethical manner.

The market price of many of the input goods used in the manufacture of SCA’s products fluctuates over time and this could influence SCA’s earnings.

Employee-related risksSCA must have access to skilled and motivated employees and safeguard the availability of compe-tent managers to achieve established strategic and operational objectives.

Legal risksNew legislation in various countries could negatively impact SCA. Legal processes can be prolonged and costly.

IT risksSCA relies on IT systems in its day-to-day opera-tions. Disruptions or faults in critical systems have a direct impact on production. Errors in the handling of financial systems can affect the company’s reporting of results.

Risk

Pol

icy/

Act

ion SCA can expand its business in various ways. The

sale of SCA’s products in new markets can be managed by agents or by the Group’s own sales company. When it has been decided to conduct manufacturing in the local market, this may be car-ried out through a joint venture in cooperation with other owners or by SCA acquiring or forming a wholly owned company. A joint venture, through collaboration with a partner with solid local know-ledge, reduces the risk for SCA.

Prior to initiating operations, SCA conducts a feasibility study. Depending on how the business will be operated, varying methods are used in the feasibility study, including market studies, and a review of the legal requirements, including environ-mental legislation, due diligence of existing compa-nies, and assessments of the business climate and common business practices in the market in ques-tion. A risk analysis of issues related to the environ-ment and business ethics is also performed.

When the business is operational, SCA has often improved its knowledge of the market and can thus adapt the organisation. The recruitment of person-nel with the appropriate values is crucial, as is main-taining contact with the market in question through communication. SCA’s Group policies, including its Code of Conduct and Sustainability Policy, apply to all markets in which SCA conducts operations.

Several methods can be applied to address the risk that movements in market prices will create signifi-cant variations in profitability. A small share of cont-racts, mainly relating to corrugated board, has been indexed to correspond to the underlying cost sce-nario. Long-term contracts at fixed prices and price hedging only occur in exceptional cases. To reduce the impact of price movements on SCA, actions are taken to adapt the cost scenario to lower market prices, for example, by renegotiating purchasing agreements, implementing personnel and capacity reductions, and reviewing the business structure. In other cases, the product’s content can be adapted to the new market price level.

Movements in the market price in a number of SCA’s product segments are detailed in the figure below. The diagram specifies the average price per year (index 100) and movements around this value over the past ten years.

SCA’s activities in this area are governed by its Risk Management Policy, which controls how SCA shall manage insurable risks. From this perspective, the aim of risk management is to protect employees, the environment, the company’s assets and the business in an effective and cost-efficient manner, and to minimise SCA’s risk management costs. This can be achieved by creating and retaining a balance between loss prevention and insurance cover.

The loss-prevention work is conducted in accordance with established guidelines that include inspections by risk engineers and benchmarking with other plants, without and out-side SCA. Other important elements of loss-pre-vention activities include maintenance of plants, staff training, good orderliness, and documenta-tion. Over a period of many years, approximately SEK 200m was invested annually in risk prevention at SCA. For example, new facilities are fitted with sprinkler systems as standard. The pace of invest-ment has now eased slightly, since many potential investments have already been made.

All plants are insured to replacement cost and for the loss of contribution margin. Within the EU, insurance is carried out by one of the Group’s own companies, with external reinsurance for major damages. Outside the EU, SCA cooperates with market-leading insurance companies.

To reduce this risk, SCA has supply contracts with several suppliers and continuously enters into agre-ements with various durations. The Group has a number of suppliers for essentially all important input goods. These contracts ensure deliveries of a significant proportion of input goods at the same time as the effects of sudden cost increases are limited. The Group also has more intensive coope-ration with selected suppliers that covers the deve-lopment of materials and processes.

SCA continuously assesses all key suppliers to ensure that they fully comply with the Group’s requi-rements in all respects. The assessment may take the form of a questionnaire, an on-site visit or the use of independent auditors. For essentially all important input goods, SCA assesses the following factors at current and potential suppliers:•  Quality•  Product safety•   Impact on the environment, including the issue of 

the origin of the input goods•  Use of chemicals•  Compliance with SCA’s Code of Conduct

The risk of price movements related to input goods and the impact of these on earnings can be managed in several ways. SCA’s structure means that a signifi-cant share of raw materials is produced within the Group and, consequently, price movements have a smaller impact on earnings. In 2010, 50% of SCA’s wood raw material requirements were sourced from its own forests and 41% of its pulp requirements were satisfied by the Group’s own pulp production. The Group’s collection of recovered fibre accounted for 36% of the Group’s needs.

Another method used to manage the price risk is by availing of financial hedges and long-term cont-racts. SCA is an energy-intensive company and hed-ges the energy price risk for electricity and natural gas. More detailed information on the energy price risk and management activities related to this is presented on page 48. Under normal circumstances, no other price risks related to input goods are hedged, although this could be carried out in exceptional cases.

A significant cost item comprises oil-based materi-als and other oil-related costs, such as transports. The oil-based materials are principally used in Personal Care and generally as packaging material. When pos-sible, these and other costs are managed principally through compensation in the form of raised prices for SCA’s products, by adjusting product specifications or through streamlining of the Group’s own operation. The impact of price movements on input goods can be delayed through purchasing agreements.

SCA’s relative costs for various key input goods are described on page 100. The price trend for a number of the input goods is outlined below.

Employee-related risksSCA’s strategic manpower planning secures access to people with the right expertise at the right time. Recruitment can take place both externally and inter-nally, and internal recruitment and job rotation are facilitated by a “Job portal”, where available positions are advertised both internally and externally. Salaries and other conditions are to be adapted to the market and linked to SCA’s business priorities. An establis-hed succession planning programme protects ope-rations. SCA endeavours to maintain good relations-hips with union organisations.

Legal risksSCA monitors the development of legislation through its internal corporate legal staff and exter-nal advisors. Another important issue is the mana-gement of SCA’s intangible assets (patents, trade-marks, etc.), which is largely centralised. In the 100 or so countries in which SCA conducts operations, local legal issues and disputes are handled through an extensive network of local legal advisors.

IT risksSCA has established a management system for infor-mation security, including quality assurance procedu-res that govern IT operations. Information security is monitored through continuous reviews. Standardised processes are in place for the implementation of new systems, changes to existing systems and daily ope-ration. The majority of SCA’s system landscape is based on well-proven products, such as SAP

Policy/A

ction

Sales in emerging markets

Emerging markets include the countries in Eastern Europe, Latin America and Asia (excluding Japan) and Africa.

Highest/lowest market prices (annual average) 2001–2010 per product

7% 18%

2000 2010

Emerging markets

Mature markets

Index

80

90

100

110

120

130

Solid-wood products (Pine)Average price for

the period

Publishing paper (LWC)

Corrugated board

Tissue

SCA Annual Report 2010 | Board of Directors’ Report46

Responsibility and governance | Risk and risk management

Page 51: SCA Annual Report 2010 En

Expansion into new markets Movements in the market price for SCA’s products

Risks at plants Suppliers Cost of input goods Employee-related risks, legal risks and IT risks

Ris

k In recent years, SCA has expanded the operation into new geographic emerging markets outside Western Europe and North America. If the condi-tions differ from those in already established mar-kets, this expansion could involve new risks for SCA.

Movements in the market price of SCA’s products could create large fluctuations in the profitability of the product in question when these movements are not related to changes in costs for SCA.

SCA has a large number of production facilities in some 40 countries and many of these conduct continuous production. Fires, machinery break-downs and other types of harmful incidents could damage the plant in question and also cause deli-very problems.

SCA is dependent on a large number of suppliers. The loss of key suppliers could result in costs for SCA and problems in manufacturing. Suppliers could also cause problems for SCA through non-compliance with applicable legislation and regula-tions or by otherwise acting in an unethical manner.

The market price of many of the input goods used in the manufacture of SCA’s products fluctuates over time and this could influence SCA’s earnings.

Employee-related risksSCA must have access to skilled and motivated employees and safeguard the availability of compe-tent managers to achieve established strategic and operational objectives.

Legal risksNew legislation in various countries could negatively impact SCA. Legal processes can be prolonged and costly.

IT risksSCA relies on IT systems in its day-to-day opera-tions. Disruptions or faults in critical systems have a direct impact on production. Errors in the handling of financial systems can affect the company’s reporting of results.

Risk

Pol

icy/

Act

ion SCA can expand its business in various ways. The

sale of SCA’s products in new markets can be managed by agents or by the Group’s own sales company. When it has been decided to conduct manufacturing in the local market, this may be car-ried out through a joint venture in cooperation with other owners or by SCA acquiring or forming a wholly owned company. A joint venture, through collaboration with a partner with solid local know-ledge, reduces the risk for SCA.

Prior to initiating operations, SCA conducts a feasibility study. Depending on how the business will be operated, varying methods are used in the feasibility study, including market studies, and a review of the legal requirements, including environ-mental legislation, due diligence of existing compa-nies, and assessments of the business climate and common business practices in the market in ques-tion. A risk analysis of issues related to the environ-ment and business ethics is also performed.

When the business is operational, SCA has often improved its knowledge of the market and can thus adapt the organisation. The recruitment of person-nel with the appropriate values is crucial, as is main-taining contact with the market in question through communication. SCA’s Group policies, including its Code of Conduct and Sustainability Policy, apply to all markets in which SCA conducts operations.

Several methods can be applied to address the risk that movements in market prices will create signifi-cant variations in profitability. A small share of cont-racts, mainly relating to corrugated board, has been indexed to correspond to the underlying cost sce-nario. Long-term contracts at fixed prices and price hedging only occur in exceptional cases. To reduce the impact of price movements on SCA, actions are taken to adapt the cost scenario to lower market prices, for example, by renegotiating purchasing agreements, implementing personnel and capacity reductions, and reviewing the business structure. In other cases, the product’s content can be adapted to the new market price level.

Movements in the market price in a number of SCA’s product segments are detailed in the figure below. The diagram specifies the average price per year (index 100) and movements around this value over the past ten years.

SCA’s activities in this area are governed by its Risk Management Policy, which controls how SCA shall manage insurable risks. From this perspective, the aim of risk management is to protect employees, the environment, the company’s assets and the business in an effective and cost-efficient manner, and to minimise SCA’s risk management costs. This can be achieved by creating and retaining a balance between loss prevention and insurance cover.

The loss-prevention work is conducted in accordance with established guidelines that include inspections by risk engineers and benchmarking with other plants, without and out-side SCA. Other important elements of loss-pre-vention activities include maintenance of plants, staff training, good orderliness, and documenta-tion. Over a period of many years, approximately SEK 200m was invested annually in risk prevention at SCA. For example, new facilities are fitted with sprinkler systems as standard. The pace of invest-ment has now eased slightly, since many potential investments have already been made.

All plants are insured to replacement cost and for the loss of contribution margin. Within the EU, insurance is carried out by one of the Group’s own companies, with external reinsurance for major damages. Outside the EU, SCA cooperates with market-leading insurance companies.

To reduce this risk, SCA has supply contracts with several suppliers and continuously enters into agre-ements with various durations. The Group has a number of suppliers for essentially all important input goods. These contracts ensure deliveries of a significant proportion of input goods at the same time as the effects of sudden cost increases are limited. The Group also has more intensive coope-ration with selected suppliers that covers the deve-lopment of materials and processes.

SCA continuously assesses all key suppliers to ensure that they fully comply with the Group’s requi-rements in all respects. The assessment may take the form of a questionnaire, an on-site visit or the use of independent auditors. For essentially all important input goods, SCA assesses the following factors at current and potential suppliers:•  Quality•  Product safety•   Impact on the environment, including the issue of 

the origin of the input goods•  Use of chemicals•  Compliance with SCA’s Code of Conduct

The risk of price movements related to input goods and the impact of these on earnings can be managed in several ways. SCA’s structure means that a signifi-cant share of raw materials is produced within the Group and, consequently, price movements have a smaller impact on earnings. In 2010, 50% of SCA’s wood raw material requirements were sourced from its own forests and 41% of its pulp requirements were satisfied by the Group’s own pulp production. The Group’s collection of recovered fibre accounted for 36% of the Group’s needs.

Another method used to manage the price risk is by availing of financial hedges and long-term cont-racts. SCA is an energy-intensive company and hed-ges the energy price risk for electricity and natural gas. More detailed information on the energy price risk and management activities related to this is presented on page 48. Under normal circumstances, no other price risks related to input goods are hedged, although this could be carried out in exceptional cases.

A significant cost item comprises oil-based materi-als and other oil-related costs, such as transports. The oil-based materials are principally used in Personal Care and generally as packaging material. When pos-sible, these and other costs are managed principally through compensation in the form of raised prices for SCA’s products, by adjusting product specifications or through streamlining of the Group’s own operation. The impact of price movements on input goods can be delayed through purchasing agreements.

SCA’s relative costs for various key input goods are described on page 100. The price trend for a number of the input goods is outlined below.

Employee-related risksSCA’s strategic manpower planning secures access to people with the right expertise at the right time. Recruitment can take place both externally and inter-nally, and internal recruitment and job rotation are facilitated by a “Job portal”, where available positions are advertised both internally and externally. Salaries and other conditions are to be adapted to the market and linked to SCA’s business priorities. An establis-hed succession planning programme protects ope-rations. SCA endeavours to maintain good relations-hips with union organisations.

Legal risksSCA monitors the development of legislation through its internal corporate legal staff and exter-nal advisors. Another important issue is the mana-gement of SCA’s intangible assets (patents, trade-marks, etc.), which is largely centralised. In the 100 or so countries in which SCA conducts operations, local legal issues and disputes are handled through an extensive network of local legal advisors.

IT risksSCA has established a management system for infor-mation security, including quality assurance procedu-res that govern IT operations. Information security is monitored through continuous reviews. Standardised processes are in place for the implementation of new systems, changes to existing systems and daily ope-ration. The majority of SCA’s system landscape is based on well-proven products, such as SAP

Policy/A

ction

Highest/lowest market prices (annual average) 2001–2010 per product

Index

0

25

50

75

100

125

150

175

Pulp (NBSK, USD) Average price for the period

Recovered paper (OCC)

Electricity (Nordpool)

Board of Directors’ Report | SCA Annual Report 2010 47

Risk and risk management | Responsibility and governance

Page 52: SCA Annual Report 2010 En

Energy price risk Currency risk | Transaction exposure Currency risk | Translation exposure Credit risk Liquidity and refinancing risk Interest rate risk

Ris

k Energy price risk is the risk that increased energy prices could adversely impact SCA’s operating pro-fit. SCA is exposed to price movements of electricity and natural gas, but the price of other energy com-modities also directly and indirectly impacts SCA’s operating profit.

Transaction exposure is the risk that exchange rate movements in export revenues and import expen-ses could negatively impact the Group’s operating profit and the cost of non-current assets.

Translation exposure is the risk to which SCA is exposed when translating foreign subsidiaries’ balance sheets and income statements to SEK.

Credit risk refers to the risk of losses due to failure to meet payment obligations by SCA’s counterpar-ties in financial agreements or by customers.

Liquidity and refinancing risk is the risk that SCA is unable to meet its payment obligations as a result of insufficient liquidity or difficulty in raising new loans.

Interest rate risk relates to the risk that movements in the interest rates could have a negative impact on SCA. SCA is affected by interest rate movements through its net financial income and expense.

Risk

Pol

icy/

Act

ion SCA centrally manages the energy price risk related

to electricity and natural gas. According to SCA’s policy, these price risks can be hedged for a period of up to 36 months. Energy price hedging is effec-ted through financial instruments and fixed pricing in existing supply agreements.

SCA safeguards the supply of electricity and natural gas through centrally negotiated supply agreements with well-established suppliers. The portfolio of supply agreements shall be effectively spread to minimise SCA’s counterparty risk.

In 2010, SCA purchased about 7 TWh (7; 7) of electricity and about 9 TWh (9; 10) of natural gas.

The graph below displays SCA’s price hedges in relation to forecast consumption of electricity and natural gas for the next three years. The graph includes financial hedges and hedging effected via supply agreements. Some of the Swedish electricity exposure is hedged for a longer period through supply agreements that mature in 2019.

For further information concerning financial price hedges, see Note 18 Derivatives on page 82.

Transaction exposure, resulting from exports and imports, can be hedged for a period of up to 18 months. Contracted future payments for non-cur-rent assets in foreign currencies can be hedged up to the full cost.

The forecast net flow of currency against SEK amounts to SEK 10,430m (9,667; 10,764) on an annual basis. The forecast flows are expected to occur evenly over time. At year-end, a net flow against SEK corresponding to 4.2 months of the forecast flow for 2011 was hedged. The majority of hedges mature during the first and second quarters of 2011.

The table below presents the hedging of flows in 2011 and the forecast for these.

For further information relating to hedging of transaction exposure, see Note 18 Derivatives on page 82.

The policy relating to translation exposure for foreign net assets is to hedge a sufficient proportion in rela-tion to SEK so that the Group’s debt/equity ratio is unaffected by exchange rate movements. Hedging takes place by financing a certain portion of capital employed in foreign currencies with loans and deriva-tives in corresponding currencies. The optimal degree of matching in connection with hedging depends on the current consolidated debt/equity ratio. Translation exposure in the income statements of foreign subsidiaries is not currency-hedged.

At 31 December 2010, capital employed in foreign currency amounted to SEK 67,086m (72,591; 80,631). Distribution by currency is shown in the table below. At year-end, capital employed was fi-nanced in the amount of SEK 22,141m (26,530; 32,324) in foreign currency, which is equivalent to a total matching ratio of 33% (37; 40).

For further information relating to hedging of trans-lation exposure, see Note 18 Derivatives on page 82.

Financial credit riskThe objective is that counterparties must have a minimum credit rating of A- from Standard & Poor’s or A3 from Moody’s.

SCA endeavours to enter into agreements that allow net calculation of receivables and liabilities. Credit exposure in derivative instruments is set as the market value plus an additional amount based on credit risk factors that reflect the risk of increased exposure as a result of market move-ments.

At year-end, the total credit exposure was SEK 13,128m (16,103; 18,696). This exposure also includes credit risk for cash instruments in the amount of SEK 8,296m (11,927; 14,546) of which SEK 6,431m (6,779; 8,808) was attributable to lea-sing transactions (see Note 32 Contingent liabili-ties). Credit exposure in derivative instruments amounted to SEK 4,832m (4,176; 4,150) at 31 December 2010.

Credit risk in accounts receivableCredit risk in accounts receivable is managed through credit checks of customers using credit rating companies. The credit limit is set and regu-larly monitored. Accounts receivable are recognised at the amount that is expected to be paid based on an individual assessment of each customer. The graph below shows the ten largest customers’ share of outstanding accounts receivable by busi-ness area.

SCA shall maintain financial readiness in the form of a liquidity reserve consisting of cash and cash equi-valents and unutilised credit facilities totalling at least 10% of the Group’s forecasted annual sales. SCA limits its refinancing risk by having a good dist-ribution for the maturity profile of its gross debt. The gross debt’s average maturity should exceed three years. Surplus liquidity should primarily be used to amortise external liabilities. SCA’s policy is to not agree to terms that entitle the lender to withdraw loans or adjust interest rates as a direct conse-quence of movements in SCA’s financial key figures or credit rating.

SCA’s financing is mainly secured by bank loans, bond issues and through issuance of commercial papers. The refinancing risk in short-term borro-wing is limited through medium-term credit facilities from bank syndicates and individual banks with favourable credit-worthiness.

In 2010, SCA’s net debt was reduced by SEK 6,024m, mainly as a result of the Group’s positive cash flow, a lower pension liability and exchange rate effects. At year-end, the average maturity of gross debt was 2.9 years (2.6; 3.0). If short-term loans were replaced with drawings under long-term credit facilities, the maturity would amount to 3.7 years. Unutilised credit facilities amounted to SEK 28,393m at year-end. In addition, cash and cash equivalents totalled SEK 1,866m.

During the year, loans totalling approximately SEK 8,000m were refinanced. At year-end, SCA signed a new five-year syndicated credit facility of EUR 1,000m as refinancing of a syndicated credit facility of EUR 1,105m. This credit facility entered into effect in January 2011. Two bilateral credit facilities of SEK 6,000m were terminated in January 2011.

For further information, see Note 22 Current financial assets, cash and cash equivalents on page 83, and Note 25 Financial liabilities on page 86.

SCA seeks to achieve a good spread of its interest due dates to avoid large volumes of renewals occurring at the same time. SCA’s policy is to raise loans with floating rate, since it is SCA’s understan-ding that this leads to lower interest expense over time. The interest rate risk and interest period are measured by currency and the average interest term shall be within the interval 3–15 months.

In 2010, SCA’s net financial items decreased as a result of a lower average net debt and lower interest rates. SCA’s largest funding currencies are denominated in SEK and EUR; see the graph below. To achieve the desired fixed interest period and currency balance, SCA uses financial derivati-ves. The average interest period for the gross debt, including derivatives, was 6.5 months (4.8; 4.6) at year-end. The average interest rate for the total out-standing net debt, including derivatives, amounted to 3.36% (2.89; 5.61) at year-end.

Policy/A

ction

Energy price hedges in relation to forecast consumption, 31 December 2010

Forecast and hedges relating to flows in 2011

CurrencyNet flows

SEKm

Currency inflows SEKm

Currency outflows

SEKm

Hedged inflows

%

Hedged outflows

%

GBP 2,467 4,030 –1,563 20 14

RUB 1,236 1,257 –21 8 0

DKK 1,216 1,380 –164 36 1

EUR 1,156 15,278 –14,122 21 10

NOK 1,093 1,232 –139 19 0

AUD 904 1,121 –217 49 69

CHF 872 959 –87 5 0

CAD 803 1,253 –450 8 14

USD –2,314 5,643 –7,957 14 16

Other 2,997 6,951 –3,954 14 15

SEK –10,430 7,242 –17,672 16 29

Financing of capital employed

Capital employed

SEKmNet debt

SEKm

Matching financing

Currency2010

%2009

%

EUR 31,381 8,961 29 32

USD 7,639 2,298 30 34

GBP 7,322 2,645 36 44

MXN 5,438 2,945 54 47

AUD 2,927 971 33 37

RUB 2,107 1,083 51 51

DKK 1,815 817 45 54

NZD 1,681 447 27 26

PLN 1,419 870 61 63

COP 1,284 432 34 37

Other 4,073 672 16 36

Total currency 67,086 22,141 33 37

SEK 35,141 12,265

Total 102,227 34,406

Long-term currency sensitivity

CurrencySales

%Expenses

%

Operating profit1) SEKm

Closing rate 31 Dec.

2010

Average rate

2010

EUR 50 46 7,926 8.9962 9.5322

USD 12 16 –2,911 6.7983 7.1839

GBP 8 5 4,163 10.5346 11.1040

SEK 7 16 –7,787

AUD 3 1 1,465 6.9146 6.6083

MXN 2 2 787 0.5490 0.5693

DKK 2 1 1,043 1.2074 1.2803

NOK 1 0 1,236 1.1510 1.1907

Other 15 13 3,686

Total 100 100 9,608

1) Operating profit, excluding items affecting comparability.

The table to the left presents a breakdown of the Group’s net sales and operating expenses by cur-rency, which provides an overview of the Group’s long-term currency sensitivity. The largest exposures are denominated in EUR, USD, GBP and SEK. The imbalance between sales and expenses in SEK is because the Swedish operations have a high propor-tion of exports that are invoiced in foreign currencies.

Electricity

Natural gas

%

0

10

20

30

40

50

60

201320122011

SCA Annual Report 2010 | Board of Directors’ Report48

Responsibility and governance | Risk and risk management

Page 53: SCA Annual Report 2010 En

Energy price risk Currency risk | Transaction exposure Currency risk | Translation exposure Credit risk Liquidity and refinancing risk Interest rate risk

Ris

k Energy price risk is the risk that increased energy prices could adversely impact SCA’s operating pro-fit. SCA is exposed to price movements of electricity and natural gas, but the price of other energy com-modities also directly and indirectly impacts SCA’s operating profit.

Transaction exposure is the risk that exchange rate movements in export revenues and import expen-ses could negatively impact the Group’s operating profit and the cost of non-current assets.

Translation exposure is the risk to which SCA is exposed when translating foreign subsidiaries’ balance sheets and income statements to SEK.

Credit risk refers to the risk of losses due to failure to meet payment obligations by SCA’s counterpar-ties in financial agreements or by customers.

Liquidity and refinancing risk is the risk that SCA is unable to meet its payment obligations as a result of insufficient liquidity or difficulty in raising new loans.

Interest rate risk relates to the risk that movements in the interest rates could have a negative impact on SCA. SCA is affected by interest rate movements through its net financial income and expense.

Risk

Pol

icy/

Act

ion SCA centrally manages the energy price risk related

to electricity and natural gas. According to SCA’s policy, these price risks can be hedged for a period of up to 36 months. Energy price hedging is effec-ted through financial instruments and fixed pricing in existing supply agreements.

SCA safeguards the supply of electricity and natural gas through centrally negotiated supply agreements with well-established suppliers. The portfolio of supply agreements shall be effectively spread to minimise SCA’s counterparty risk.

In 2010, SCA purchased about 7 TWh (7; 7) of electricity and about 9 TWh (9; 10) of natural gas.

The graph below displays SCA’s price hedges in relation to forecast consumption of electricity and natural gas for the next three years. The graph includes financial hedges and hedging effected via supply agreements. Some of the Swedish electricity exposure is hedged for a longer period through supply agreements that mature in 2019.

For further information concerning financial price hedges, see Note 18 Derivatives on page 82.

Transaction exposure, resulting from exports and imports, can be hedged for a period of up to 18 months. Contracted future payments for non-cur-rent assets in foreign currencies can be hedged up to the full cost.

The forecast net flow of currency against SEK amounts to SEK 10,430m (9,667; 10,764) on an annual basis. The forecast flows are expected to occur evenly over time. At year-end, a net flow against SEK corresponding to 4.2 months of the forecast flow for 2011 was hedged. The majority of hedges mature during the first and second quarters of 2011.

The table below presents the hedging of flows in 2011 and the forecast for these.

For further information relating to hedging of transaction exposure, see Note 18 Derivatives on page 82.

The policy relating to translation exposure for foreign net assets is to hedge a sufficient proportion in rela-tion to SEK so that the Group’s debt/equity ratio is unaffected by exchange rate movements. Hedging takes place by financing a certain portion of capital employed in foreign currencies with loans and deriva-tives in corresponding currencies. The optimal degree of matching in connection with hedging depends on the current consolidated debt/equity ratio. Translation exposure in the income statements of foreign subsidiaries is not currency-hedged.

At 31 December 2010, capital employed in foreign currency amounted to SEK 67,086m (72,591; 80,631). Distribution by currency is shown in the table below. At year-end, capital employed was fi-nanced in the amount of SEK 22,141m (26,530; 32,324) in foreign currency, which is equivalent to a total matching ratio of 33% (37; 40).

For further information relating to hedging of trans-lation exposure, see Note 18 Derivatives on page 82.

Financial credit riskThe objective is that counterparties must have a minimum credit rating of A- from Standard & Poor’s or A3 from Moody’s.

SCA endeavours to enter into agreements that allow net calculation of receivables and liabilities. Credit exposure in derivative instruments is set as the market value plus an additional amount based on credit risk factors that reflect the risk of increased exposure as a result of market move-ments.

At year-end, the total credit exposure was SEK 13,128m (16,103; 18,696). This exposure also includes credit risk for cash instruments in the amount of SEK 8,296m (11,927; 14,546) of which SEK 6,431m (6,779; 8,808) was attributable to lea-sing transactions (see Note 32 Contingent liabili-ties). Credit exposure in derivative instruments amounted to SEK 4,832m (4,176; 4,150) at 31 December 2010.

Credit risk in accounts receivableCredit risk in accounts receivable is managed through credit checks of customers using credit rating companies. The credit limit is set and regu-larly monitored. Accounts receivable are recognised at the amount that is expected to be paid based on an individual assessment of each customer. The graph below shows the ten largest customers’ share of outstanding accounts receivable by busi-ness area.

SCA shall maintain financial readiness in the form of a liquidity reserve consisting of cash and cash equi-valents and unutilised credit facilities totalling at least 10% of the Group’s forecasted annual sales. SCA limits its refinancing risk by having a good dist-ribution for the maturity profile of its gross debt. The gross debt’s average maturity should exceed three years. Surplus liquidity should primarily be used to amortise external liabilities. SCA’s policy is to not agree to terms that entitle the lender to withdraw loans or adjust interest rates as a direct conse-quence of movements in SCA’s financial key figures or credit rating.

SCA’s financing is mainly secured by bank loans, bond issues and through issuance of commercial papers. The refinancing risk in short-term borro-wing is limited through medium-term credit facilities from bank syndicates and individual banks with favourable credit-worthiness.

In 2010, SCA’s net debt was reduced by SEK 6,024m, mainly as a result of the Group’s positive cash flow, a lower pension liability and exchange rate effects. At year-end, the average maturity of gross debt was 2.9 years (2.6; 3.0). If short-term loans were replaced with drawings under long-term credit facilities, the maturity would amount to 3.7 years. Unutilised credit facilities amounted to SEK 28,393m at year-end. In addition, cash and cash equivalents totalled SEK 1,866m.

During the year, loans totalling approximately SEK 8,000m were refinanced. At year-end, SCA signed a new five-year syndicated credit facility of EUR 1,000m as refinancing of a syndicated credit facility of EUR 1,105m. This credit facility entered into effect in January 2011. Two bilateral credit facilities of SEK 6,000m were terminated in January 2011.

For further information, see Note 22 Current financial assets, cash and cash equivalents on page 83, and Note 25 Financial liabilities on page 86.

SCA seeks to achieve a good spread of its interest due dates to avoid large volumes of renewals occurring at the same time. SCA’s policy is to raise loans with floating rate, since it is SCA’s understan-ding that this leads to lower interest expense over time. The interest rate risk and interest period are measured by currency and the average interest term shall be within the interval 3–15 months.

In 2010, SCA’s net financial items decreased as a result of a lower average net debt and lower interest rates. SCA’s largest funding currencies are denominated in SEK and EUR; see the graph below. To achieve the desired fixed interest period and currency balance, SCA uses financial derivati-ves. The average interest period for the gross debt, including derivatives, was 6.5 months (4.8; 4.6) at year-end. The average interest rate for the total out-standing net debt, including derivatives, amounted to 3.36% (2.89; 5.61) at year-end.

Policy/A

ction

Gross debt distributed by currencyTen largest customers’ share of outstanding accounts receivable by business area

Liquidity reserve

SEKm 2010 2009 2008

Unutilised credit facilities 28,393 33,400 20,684

Cash and cash equivalents 1,866 5,148 5,738

Total 30,259 38,548 26,422

%

0

5

10

15

20

25

Personal Care and Tissue

Packaging

Forest Products

Gross debt

SEKm

0

3,000

6,000

9,000

12,000

15,000

OtherDKKPLNAUDRUBUSDGBPMXNEURSEK

Board of Directors’ Report | SCA Annual Report 2010 49

Risk and risk management | Responsibility and governance

Page 54: SCA Annual Report 2010 En

Sustainable enterprise creates value

Sustainability is an integral part of SCA operations and the Group’s strategy for growth and value creation. To further raise ambitions and develop sustainability activities, a new corporate staff unit for sustainability was established at Group level in 2010.

The sustainability strategy is an integral part of

SCA’s strategy and business plans and supports

SCA’s strategic areas of costs and cash flow,

capital efficiency, innovation and growth. The

sustainability strategy is based on three main

emphases: Sustainable solutions (products and

services), Sustainable operations and Sustain-

able stakeholder dialogue.

SCA’s sustainability strategy is based on

clearly stated targets, integration with business

operations, a systematic approach, transparency

and innovation.

The foundation of SCA’s sustainability pro-

grammes comprises the four long-term targets

described on pages 52 and 53. These targets

concern areas identified by the Group as being of

long-term importance to the operations: climate

and energy (carbon dioxide), water, responsible

use of wood raw material and compliance with

the Code of Conduct.

The targets are integrated into the overall strategy

and the business plans. This guarantees that the

long-term ambitions are prioritised at both the

Group and business group levels. The targets are

transferred to the business operations with an

obligation to deliver at all levels of management.

SCA works in line with the “if it is measured, it

will get done” principle. This is achieved, for

example, through the follow-up of the sustainabil-

ity targets, a comprehensive resource manage-

ment system (RMS), systematic supplier screen-

ing, Business Practice Reviews and Code of Con-

duct evaluations and the introduction of key per-

formance indicators (KPI).

At SCA, openness and transparency have

long been a matter of course and the company

conducts continuous dialogue with various

groups of stakeholders. An active, constructive

stakeholder dialogue has a positive effect on how

the business strategy is formulated and imple-

mented, and contributes to SCA understanding

the needs of the communities in which the com-

pany conducts operations.

Innovation is a fundamental part of SCA’s

strategy. Sustainability aspects and product

safety are important factors for customers and

consumers and, consequently, product develop-

ment as well.

The various elements of the strategy interact

and form a whole. Some of the most important

effects of the sustainability activities are strength-

ened competitiveness, reduced costs, a lower

level of risk, a stronger brand and SCA being

more attractive to investors and prospective

employees.

SCA publishes a separate sustainability report each year. The Global Reporting Initiative (GRI) guidelines, level A+, are applied in the report and a detailed GRI index table can be viewed at www.sca.com. The Sustain-ability Report was reviewed in its entirety by PwC.

SCA’s Sustainability Report is available in English and Swedish in a printed version and at www.sca.com. The Sustainability Report is also SCA’s Communication on Progress, a document required of all Global Compact signatories.

The Sustainability Report and the Annual Report should be viewed as a single unit in which information may be provided in either report or, where appropriate, in both.

About the Sustainability Report

Read more at www.sca.com or in SCA’s Sustainability Report 2010.

SCA Sustainability Report2010

SCA Annual Report 2010 | Board of Directors’ Report50

Responsibility and governance | Sustainability

Page 55: SCA Annual Report 2010 En

Sustainability programmes are of key importance to SCA’s ability to attract customers, employees and investors. From an owner per-spective, sustainability initiatives help to maximise the value of the company.

Creating value for stakeholdersThrough its business operations, SCA helps to

generate economic development in society and

economic development among its stakeholders –

both directly and indirectly.

SCA provides its customers with products

and it purchases materials and services from sup-

pliers. Wages are paid to employees, who in turn

contribute to society through taxes and purchas-

ing power. Shareholders receive dividends and

society receives income in the form of taxes.

SCA’s community involvement contributes posi-

tively to the local communities. SCA’s operations

in emerging markets help these regions to

develop economically through the business rela-

tionships SCA has with local stakeholders, such

as employees and local suppliers.

Sustainable enterprise important to long-term competitivenessIn recent years, customer and consumer interest

in sustainability has grown strongly. In contract

negotiations, it is increasingly common for cus-

tomers to both ask questions and set require-

ments, mainly in the area of the environment, but

also in corporate social responsibility. Conse-

quently, SCA’s many years of sustainability work

are a competitive advantage.

During the year, all of Libero’s open diapers

received the Nordic Eco-label and approximately

90 of Tork’s European products were certified

with the European EU Eco-label. Demand for

environmentally certified forest products has

grown sharply in recent years and in 2010, SCA’s

deliveries of FSC-certified publication papers grew

by 35%. In Latin America and Asia, initiatives are

under way to provide low-income consumers

the opportunity to buy personal care products by

adapting the offering to local conditions (see box

below).

Growing proportion of investors with sustainability requirements An increasing number of investors judge SCA

from a sustainability perspective. Major institu-

tional investors often add environmental and

social parameters to their risk analysis, while a

number of sustainability funds have a strategy of

only investing in companies that are among the

best from an environmental, social and economic

perspective.

In the most recent measurement (2009), it was

estimated that 23% of SCA’s shares are owned

by investors who examine SCA from a sustain-

ability perspective. This corresponds to an

in crease of 18% since 2004. The SCA share is

a part of the investment portfolios of 87 European

sustainability funds, which means that SCA

belongs to the companies that are the most

frequently occurring in these funds.

SCA included in many sustainability indexesSCA is assessed annually by several ranking

institutes. Since 2001, SCA has been listed on

FTSE4Good, an index measuring earnings and

performance among companies that meet glob-

ally recognised norms for corporate responsibil-

ity. Carbon Disclosure Project, Global Challenges

Index, Vigeo, Orange SeNSe Fund and OMX GES

Nordic Sustainability Index are examples of other

indexes and funds in which SCA is included. In

2010, interest from SRI (Socially Responsible

Investment) players remained considerable.

Cost distribution by stakeholder

SEKm %

Suppliers 75,961 70

Employee salaries 15,654 15

Remaining in the company* 7,220 7

Employee social security costs 4,297 4

Dividend to shareholders 2,657 2

Income taxes paid 1,255 1

Interest paid to creditors 1,116 1*  Current expenditures, restructuring costs, strategic investments and

acquisitions.

Economic responsibility

For several years, SCA has worked to make its products more accessible and improve everyday life for low-income earners. This is done, for instance, by selling packs containing fewer products in small, local stores (mom & pop stores) in countries like Mexico, Columbia and Costa Rica. In 2010, Hey Baby diapers were launched in the economy segment and Drypers diapers in single-packs were launched in Asia. In Russia, a pant diaper was launched in the economy segment to provide more consumers access to the product and grow the segment.

Globally, there are major opportunities to generate growth by target-ing large groups of women in emerging markets that currently use femi-nine care products to a very limited extent or not at all.

SCA has initiated efforts aimed at improving everyday life for women with low incomes. The project aims to identify success factors to be able to establish a relevant offering to these consumers and, with it, significant and lasting sales.

SCA is currently conducting a pilot project in two countries – Nicaragua and Peru – where the significance of parameters such as quality, price, functionality, brand, consumer advice, distribution, availability and number of feminine care products per package are evaluated. SCA’s ambition is to expand the concept to more countries.

SCA simplifies everyday life with personal care products in emerging markets

Board of Directors’ Report | SCA Annual Report 2010 51

Sustainability | Responsibility and governance

Page 56: SCA Annual Report 2010 En

SCA endeavours to minimise its environmental footprint to the greatest possible extent. The emphasis in the environmental work is on climate and energy, responsible use of wood raw material and water.

Climate and energySCA is an energy intensive company and major

investments are required to achieve the Group’s

carbon dioxide target (see below). SCA works

systematically to replace coal and oil with natural

gas and biofuel.

Another way to reduce emissions is to seek to

identify alternative energy sources and, in part-

nership with Norwegian Statkraft, SCA is pursu-

ing a wind power project that is expected to gen-

erate 2,400 GWh of electricity per year.

ESAVE is SCA’s energy efficiency programme.

Since its launch in 2003, more than 1,300 projects

have been carried out, resulting in accumulated

saving effects of 700 GWh of electricity and

1,400 GWh of heat on an annual basis. In financial

terms, this corresponds to approximately

SEK 600m in annual savings.

Responsible use of wood raw materialSCA makes extensive efforts to verify its own for-

est management and that conducted by external

suppliers. With its holding of 2.6 million hectares

of forest, SCA is the largest private forest owner

in Europe.

SCA’s own forest holding is certified in accor-

dance with the requirements of the Forest Stew-

ardship Council (FSC), the most stringent interna-

tional standard for forest management. SCA is

one of the world’s largest suppliers of FSC-certi-

fied products. All of the timber supplied to SCA’s

pulp and paper mills and sawmills is FSC certified

or meets the FSC criteria for controlled wood.

SCA purchases large quantities of raw materi-

als in the form of fresh fibre or raw materials that

originate from fresh fibre, such as pulp and kraft-

liner. In order to ensure that no fresh fibre-based

material originating from controversial sources is

used in the Group’s production, SCA evaluates its

existing and potential suppliers.

The level of growth in SCA’s forests exceeds

the harvesting rate by 20%, which means that

SCA’s forests absorb a net amount of 2.6 million

tonnes of carbon dioxide. This corresponds to the

total amount of carbon emissions generated by

all of the Group’s production facilities.

Systematic work to enhance water usageSCA uses large volumes of water in the manufac-

ture of pulp and paper. Accordingly, two water

targets were introduced in 2005 (see next page).

The water target was concluded in 2010 and work

is under way to develop new targets for SCA’s

water management.

Environmental responsibility

1. Carbon dioxide emissions shall be reduced by 20%

SCA will reduce its carbon emissions from fossil fuels and from the pur-chase of electricity and heat, relative to the production level, by 20% by the year 2020, using 2005 as a reference year.

Results in 2010At year- end 2010, carbon emissions had declined by 4.2% relative to the production level.

2. Responsible use of wood raw material

SCA will employ methods that ensure that no wood fibre or fresh fibre-based material comes from controversial sources. The target also includes purchased fibre in the form of pulp and containerboard.

Results in 2010• AlldeliveriesofpulptoSCA’sfacilitiescomplywiththeGrouptarget.• AllofSCA’swood-consumingunitsarereviewedbyindependentaudi-

tors and meet the requirements of the Group target.• SCAPackagingEuropehascontroloftheoriginof85%ofthefresh

fibre used by the business group. The ambition is to fully comply with the Group target regarding the control of fresh fibre raw material by 2011.

SCA’s four sustainability targets

SCA Annual Report 2010 | Board of Directors’ Report52

Responsibility and governance | Sustainability

Page 57: SCA Annual Report 2010 En

Safety statistics

2010 2009 2008 2007 2006

Lost Time Accidents 569 564 685 770 762

Days Lost due to Accidents 13,810 15,947 16,181 15,812 17,428

Accident Severity Rate1) 24.3 28.3 23.7 20.5 22.3

Incident Rate (incidents/100 employees) 1.5 1.4 1.6 1.8 1.8

Frequency Rate (incidents/million hours worked) 8.3 7.3 8.5 9.5 9.8

Fatalities 1 2 0 32) 1

1) Days Lost due to Accidents divided by Lost Time Accidents.2) Two SCA employees and one contractor.

SCA activities in the field of corpo-rate social responsibility are an important part of corporate sus-tainability. Its work is based on the Code of Conduct, which provides the basis for SCA’s approach to such issues as health and safety, employee relations, human rights, business ethics and community involvement.

SCA’s Code of ConductSCA is committed to ensuring compliance with

the Code of Conduct and policies in all its opera-

tions throughout the world. This is achieved

through regular reviews and follow-up of non-

compliance with the Code. In 2010, a total of

eight cases of non- compliance with the Code of

Conduct were reported.

Business Practice Reviews are used to moni-

tor compliance with business ethics and are regu-

larly carried out by the SCA internal audit unit.

Social responsibility

3. Improved water usage

SCA shall reduce the organic content of wastewater by 30% and water usage by 15% between 2005 and 2010.

Results in 2005–2010Byyear-end2010,organiccontentofwastewaterdecreasedby35.4%compared with the reference year, which means that this part of the water target was exceeded. Specific water usage had decreased by 12.0%, which means that this part of the target was not fully achieved. Some of SCA’s efforts to reduce water usage were undertaken at facilities in locations where the water supply is limited, meaning that usage was already rela-tivelylowinthereferenceyearof2005.ThiswasoneofthereasonswhySCA did not fully achieve its target.

The Group’s water target was concluded in 2010 and work is under way to develop new targets for SCA’s water usage.

4. Compliance with the Code of Conduct

SCA’s Code of Conduct is an integral element of daily operations.

Results in 2010• TheprocessforCodeofConductassessments,includinghumanrights

compliance, was updated. An initial assessment in line with the new guidelines was carried out in Mexico.

• BusinessPracticeReviewswereconductedinItalyandMexico.• Anewglobalsupplierstandardforthehygienebusinesswasintroduced.• NewGuidelinesthatexplainanddescribetheimplicationsoftheCode

of Conduct were developed.• Anewstandardforinformationsecuritywasdevelopedandimplemen-

tation is scheduled for completion in 2011. • Areviewofthemanagementsystemforhealthandsafetywascarriedout.• AtooltogatherandanalyseallofSCA’scommunityinvolvement

projects was developed.

Since 2005, SCA has conducted evaluations of

the Code of Conduct, including human rights, at

facilities in countries where an elevated risk is

assessed to exist. In 2010, the process was

updated for evaluations of the Code of Conduct

and in December, an initial evaluation was con-

ducted in Mexico according to the new guidelines.

Supplier evaluationIn 2010, a new global supplier standard was

developed for SCA’s hygiene business based

on the previous supplier standard. Compliance

with SCA’s values and ethical principles is an

important part of the standard. SCA sets high

standards for socially responsible conditions in its

own operations and sets corresponding require-

ments for suppliers and other business partners.

Health and safetyThe provision of a safe working environment is

paramount at SCA. Safety statistics fill an impor-

tant function in the Group’s health and safety

activities and form the basis of risk analysis and

continuous improvements.

Board of Directors’ Report | SCA Annual Report 2010 53

Sustainability | Responsibility and governance

Page 58: SCA Annual Report 2010 En

ContentsConsolidated income statement ..................................................... 55

Consolidated statement of comprehensive income ............................ 55

Consolidated statement of changes in equity .................................... 56

Consolidated operating cash flow statement, supplementary disclosure .............................................................. 56

Consolidated cash flow statement .................................................. 57

Correlation between consolidated cash flow statement and operating cash flow statement, supplementary disclosure .................. 58

Consolidated balance sheet ........................................................... 59

Financial statements, Parent Company ............................................ 60

Notes

Note 1 Accounting principles ...................................................... 62

Group

Note 2 Key assessments and assumptions ................................... 66

Note 3 Acquisitions and divestments ........................................... 67

Note 4 Operating expenses by type of costs ................................. 68

Note 5 Segment reporting .......................................................... 69

Note 6 Personnel and Board costs ............................................... 71

Note 7 Depreciation and impairment of property, plant and equipment, and intangible assets ......................... 74

Note 8 Financial income and expenses ......................................... 74

Note 9 Income taxes ................................................................. 75

Note 10 Intangible fixed assets ..................................................... 76

Note 11 Property, plant and equipment .......................................... 77

Note 12 Biological assets ............................................................. 78

Note 13 Holdings in associates ..................................................... 79

Note 14 Shares and participations ................................................. 79

Note 15 Joint ventures ................................................................. 79

Note 16 List of major subsidiaries, joint ventures and associates ............................................................... 80

Note 17 Non-current financial assets ............................................. 81

Note 18 Derivatives ..................................................................... 82

Note 19 Inventories ..................................................................... 83

Note 20 Trade receivables ............................................................ 83

Note 21 Other current receivables ................................................. 83

Note 22 Current financial assets, cash and cash equivalents ............. 83

Note 23 Non-current assets and liabilities held for sale ..................... 83

Note 24 Equity ........................................................................... 84

Note 25 Financial liabilities ........................................................... 86

Note 26 Provisions for pensions .................................................... 87

Note 27 Other provisions ............................................................. 89

Note 28 Other non-current liabilities .............................................. 89

Note 29 Other current liabilities ..................................................... 89

Note 30 Liquidity risk ................................................................... 89

Note 31 Financial instruments by category ..................................... 90

Note 32 Contingent liabilities ........................................................ 91

Note 33 Pledged assets ............................................................... 91

Parent Company

Note 34 Operating profit .............................................................. 92

Note 35 Personnel and Board costs ............................................... 92

Note 36 Depreciation of tangible and intangible assets ..................... 92

Note 37 Financial items ............................................................... 92

Note 38 Appropriations and untaxed reserves ................................. 92

Note 39 Income taxes ................................................................. 93

Note 40 Intangible assets ............................................................. 93

Note 41 Tangible assets ............................................................... 93

Note 42 Shares .......................................................................... 94

Note 43 Receivables from and liabilities to subsidiaries .................... 94

Note 44 Other current receivables ................................................. 94

Note 45 Equity ........................................................................... 94

Note 46 Provisions for pensions .................................................... 94

Note 47 Non-current interest-bearing liabilities ................................ 95

Note 48 Other current liabilities ..................................................... 95

Note 49 Contingent liabilities ........................................................ 95

Note 50 Pledged assets ............................................................... 95

Note 51 Financial instruments by category ...................................... 95

Note 52 Adoption of the annual accounts ....................................... 95

Proposed distribution of earnings .................................................... 96

Audit report ................................................................................. 97

Financial statements

Page 59: SCA Annual Report 2010 En

2010 2009 20083)

Group Note SEKm EURm1) SEKm EURm1) SEKm EURm1)

Net sales 5 109,142 11,450 110,857 10,466 110,449 11,532

Cost of goods sold 4 –84,524 –8,867 –84,744 –8,001 –88,190 –9,208

Gross profit 24,618 2,583 26,113 2,465 22,259 2,324

Sales, general and administration 4 –15,121 –1,586 –16,500 –1,558 –13,730 –1,434

Items affecting comparability 4 –931 –98 –1,458 –137 0 0

Share of profits of associates 111 12 35 3 25 3

Operating profit 8,677 911 8,190 773 8,554 893

Financial income 8 64 7 158 15 246 26

Financial expenses 8 –1,180 –124 –1,802 –170 –2,563 –268

Profit before tax 7,561 794 6,546 618 6,237 651

Tax 9 –1,969 –207 –1,716 –162 –639 –67

Net profit for the year 5,592 587 4,830 456 5,598 584

Earnings attributable to:

Owners of the Parent 5,552 582 4,765 450 5,578 582

Non-controlling interests 40 4 65 6 20 2

Earnings per share 2010 2009 2008

Earnings per share, SEK – owners of the Parent

before dilution effects 7.90 6.78 7.94

after dilution effects 7.90 6.78 7.94

Dividend per share, SEK 4.002) 3.70 3.50

Earnings attributable to owners of the Parent 5,552 4,765 5,578

Average number of shares before dilution, million 702.3 702.3 702.2

Warrants 0.0 0.0 0.2

Average number of shares after dilution 702.3 702.3 702.4

Consolidated income statement

Consolidated statement of comprehensive incomeSEKm 2010 2009 2008

Profit for the year 5,592 4,830 5,598

Other comprehensive income for the year

Actuarial gains/losses on defined-benefit pension plans 523 –949 –3,322

Available-for-sale financial assets:

Gains/Losses from fair-value measurement recognised in equity 328 331 –599

Transferred to profit or loss at sale 8 0 0

Cash flow hedges:

Gains or losses from remeasurement of derivatives recognised in equity 711 –202 –312

Transferred to income statement for the period –234 319 58

Transferred to cost of hedged investments 15 –10 –5

Exchange differences on translating foreign operations –8,633 –2,750 2,885

Gains/losses from hedges of net investments in foreign operations 4,613 1,391 763

Income tax relating to components of other comprehensive income –292 192 1,013

Other comprehensive income for the year, net after tax –2,961 –1,678 481

Total comprehensive income for the year 2,631 3,152 6,079

Total comprehensive income attributable to:

Owners of the Parent 2,699 3,164 5,921

Non-controlling interests –68 –12 158

By business area Net sales Operating profit4)

SEKm 2010 2009 2008 2010 2009 2008

Personal Care 25,027 25,716 23,331 2,922 3,235 2,912

Tissue 39,870 41,425 38,380 3,041 3,946 2,375

Packaging 29,633 28,359 33,441 1,577 413 1,493

Forest Products 17,123 16,983 16,710 2,455 2,503 2,207

Publication papers 8,526 9,759 9,015 –88 1,253 402

Pulp, timber and solid-wood products 8,597 7,224 7,695 2,543 1,250 1,805

Other 1,855 1,470 1,468 –387 –449 –433

Intra-Group deliveries –4,366 –3,096 –2,881

Total 109,142 110,857 110,449 9,608 9,648 8,554

1) Average exchange rate of 9.53 (10.59, 9.58) was applied in translation to EUR.2) Board proposal.3) In figures for 2008, reclassification took place between Cost of goods sold (gross profit) and Sales and administration expenses.4) Excluding items affecting comparability.

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2010 2009 2008

Group SEKm EURm1) SEKm EURm1) SEKm EURm1)

Net sales 109,142 11,450 110,857 10,466 110,449 11,532

Operating expenses –93,321 –9,790 –94,415 –8,914 –95,709 –9,993

Operating surplus 15,821 1,660 16,442 1,552 14,740 1,539

Adjustment for significant non-cash items –724 –76 –709 –67 –871 –91

Operating cash surplus 15,097 1,584 15,733 1,485 13,869 1,448

Change in

Operating receivables –3,197 –335 1,556 147 798 83

Inventories –1,866 –196 2,210 209 –363 –38

Operating liabilities 4,021 422 –459 –44 –454 –47

Change in working capital –1,042 –109 3,307 312 –19 –2

Current capital expenditures, net –3,647 –383 –4,037 –381 –5,353 –559

Restructuring costs, etc. –653 –69 –870 –82 –684 –71

Operating cash flow 9,755 1,023 14,133 1,334 7,813 816

Financial items –1,116 –117 –1,644 –155 –2,317 –242

Income taxes paid –1,255 –131 –1,003 –94 –1,702 –178

Other 15 1 4 0 16 2

Cash flow from current operations 7,399 776 11,490 1,085 3,810 398

Strategic capital expenditures, restructuring costs and divestments

Acquisitions –493 –52 –51 –5 –1,764 –184

Strategic capital expenditures, non-current assets –2,427 –254 –3,031 –286 –3,109 –325

Total strategic capital expenditures –2,920 –306 –3,082 –291 –4,873 –509

Divestments 1,297 136 75 7 1,140 119

Cash flow from strategic restructuring costs, capital expenditures and divestments –1,623 –170 –3,007 –284 –3,733 –390

Cash flow before dividend 5,776 606 8,483 801 77 8

Sale of treasury shares – – – – 28 3

Dividend to shareholders –2,657 –280 –2,498 –236 –3,128 –327

Net cash flow 3,119 326 5,985 565 –3,023 –316

Net debt

2010 2009 2008

SEKm EURm1) SEKm EURm1) SEKm EURm1)

Net debt, 1 January –40,430 –3,916 –47,002 –4,298 –37,368 –3,948

Net cash flow 3,119 326 5,985 565 –3,023 –316

Remeasurements to equity 695 73 –729 –69 –3,523 –368

Currency effects 2,210 –308 1,316 –114 –3,088 334

Net debt, 31 December –34,406 –3,825 –40,430 –3,916 –47,002 –4,298

1) Average exchange rate of 9.53 (10.59, 9.58) was applied in translation to EUR.

Consolidated operating cash flow statement, supplementary disclosure

Consolidated statement of changes in equitySEKm 2010 2009 2008

Attributable to owners of the Parent

Opening balance, 1 January 67,156 66,450 63,590

Total comprehensive income for the year 2,699 3,164 5,921

Sale of treasury shares – – 28

Remeasurement effect in acquisition of non-controlling interest –1 – –

Dividend –2,599 –2,458 –3,089

Closing balance 67,255 67,156 66,450

Non-controlling interests

Opening balance, 1 January 750 802 689

Total comprehensive income for the year –68 –12 158

Dividend –58 –40 –39

Change in Group composition –58 – –6

Closing balance 566 750 802

Total equity, closing balance 67,821 67,906 67,252

For further information, see Note 24 Equity.

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2010 2009 2008

Group SEKm EURm* SEKm EURm* SEKm EURm*

Operating activities

Profit before tax 7,561 793 6,546 618 6,237 651

Adjustment for non-cash items1) 5,751 603 6,431 607 4,812 502

13,312 1,396 12,977 1,225 11,049 1,153

Paid tax –1,255 –132 –1,003 –95 –1,702 –178

Cash flow from operating activities before changes in working capital 12,057 1,264 11,974 1,130 9,347 975

Cash flow from changes in working capital

Change in inventories –1,866 –196 2,210 209 –363 –38

Change in operating receivables –3,197 –335 1,556 147 798 83

Change in operating liabilities 4,021 422 –459 –43 –454 –47

Cash flow from operating activities 11,015 1,155 15,281 1,443 9,328 973

Investing activities

Acquisition of operations2) –458 –48 –45 –4 –1,763 –184

Sold operations3) 1,205 126 71 7 1,129 118

Investments in property, plant and equipment and intangible assets4) –6,370 –668 –7,215 –681 –8,635 –901

Sale of property, plant and equipment 303 32 150 14 210 22

Loans granted to external parties – – – – –1,171 –122

Repayment of loans from external parties 934 98 672 63 – –

Cash flow from investing activities –4,386 –460 –6,367 –601 –10,230 –1,067

Financing activities

Sale of treasury shares – – – – 28 3

Loans raised – – – – 6,615 691

Amortisation of debt –7,179 –753 –6,966 –658 – –

Dividend paid** –2,657 –279 –2,498 –236 –3,128 –327

Cash flow from financing activities –9,836 –1,032 –9,464 –894 3,515 367

Cash flow for the year –3,207 –337 –550 –52 2,613 273

Cash and cash equivalents at the beginning of the year 5,148 499 5,738 524 3,023 319

Exchange differences in cash and cash equivalents –75 45 –40 27 102 –68

Cash and cash equivalents at the end of the year5) 1,866 207 5,148 499 5,738 524

** Average exchange rate of 9.53 (10.59, 9.58) was applied in translation to EUR.** Including dividend to non-controlling interests.

Consolidated cash flow statement

1) Adjustment for non-cash items, SEKm 2010 2009 2008

Depreciation and impairment of non-current assets 6,442 7,428 6,211

Fair-value measurement of forest assets –629 –668 –720

Unpaid relating to efficiency programme 577 463 –

Payments relating to efficiency programme already recognised –482 –499 –616

Other –157 –293 –63

Total 5,751 6,431 4,812

2) Acquisition of operations, SEKm 2010 2009 2008

Non-current assets 415 38 1,487

Operating assets 116 32 132

Cash and cash equivalents 3 1 1

Provisions and other non-current liabilities –112 – –123

Net debt excl. cash and cash equivalents –35 –6 –1

Operating liabilities –31 –24 –36

Fair value of net assets 356 41 1,460

Goodwill 83 37 297

Acquisition price 439 78 1,757

Acquisition price –439 –78 –1,757

Unpaid purchase price related to acquisition – 32 –

Settled debt pertaining to acquisitions in earlier years –22 0 –7

Cash and cash equivalents in acquired companies 3 1 1

Effect on Group’s cash and cash equivalents, acquisition of operations –458 –45 –1,763

3) Divested operations, SEKm 2010 2009 2008

Non-current assets 1,262 80 1,019

Operating assets 853 27 867

Cash and cash equivalents 135 1 19

Net debt excl. cash and cash equivalents –92 –4 –11

Provisions –19 – –219

Operating liabilities –742 –24 –521

Non-controlling interests –58 – –6

Gain/loss on sale 1 –8 0

Purchase price received 1,340 72 1,148

Cash and cash equivalents in divested operations –135 –1 –19

Effect on Group’s cash and cash equivalents, Divested operations 1,205 71 1,129

4) Investments in intangible assets and property, plant and equipment

Investments in intangible assets, property, plant and equipment, and biological assets during the year totalled SEK 6,377m (7,218; 8,671) of which SEK 7m (3; 36) was financed through finance leases.

5) Cash and cash equivalents, SEKm 2010 2009 2008

Cash and bank balances 1,291 1,570 1,462

Short-term investments, maturity < 3 months 575 3,578 4,276

Total 1,866 5,148 5,738

The Group’s total liquidity reserve at year-end amounted to SEK 30,259m (38,548; 26,422), including unutilised lines of credit of SEK 28,393m (33,400; 20,684).

Interest paid, SEKm 2010 2009 2008

Interest paid –1,328 –2,021 –2,096

Interest received 43 89 170

Total –1,285 –1,932 –1,926

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Correlation between consolidated cash flow statement and operating cash flow statement, supplementary disclosures

Cash flow from operating activitiesSEKm 2010 2009 2008

Cash flow from operating activities 11,015 15,281 9,328

Less

Strategic restructuring costs – 0 1

Add

Current capital expenditures –3,647 –4,037 –5,353

Accrued interest 31 246 –166

Cash flow from current operations as shown in the Consolidated operating cash flow statement 7,399 11,490 3,810

Cash flow from investing activitiesSEKm 2010 2009 2008

Cash flow from investing activities –4,386 –6,367 –10,230

Less

Current capital expenditures 3,647 4,037 5,353

Loans granted to external parties – – 1,171

Repayment of loans from external parties –934 –672 –

Add

Strategic restructuring costs – – –1

Net debt in acquired and divested operations 57 –2 10

Investments financed by leasing –7 –3 –36

Cash flow from strategic capital expenditures, restructuring costs and divestments according to the Consolidated operating cash flow statement –1,623 –3,007 –3,733

Cash flow for the yearSEKm 2010 2009 2008

Cash flow for the year –3,207 –550 2,613

Less

Loans granted to external parties – – 1,171

Repayment of loans from external parties –934 –672 –

Amortisation of debt 7,179 6,966 –

Loans raised – – –6,615

Add

Net debt in acquired and divested operations 57 –2 10

Accrued interest 31 246 –166

Investments through finance leases –7 –3 –36

Net cash flow according to Consolidated operating cash flow statement 3,119 5,985 –3,023

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Consolidated balance sheet

31 Dec. 2010 31 Dec. 2009 31 Dec. 2008

Group Note SEKm EURm1) SEKm EURm1) SEKm EURm1)

ASSETS

Non-current assets

Goodwill 10 17,688 1,966 19,147 1,855 19,374 1,772

Other intangible assets 10 3,270 363 3,404 330 3,786 346

Buildings, land, machinery and equipment 11 56,167 6,243 61,404 5,947 63,700 5,825

Biological assets 12 26,069 2,898 25,397 2,460 24,711 2,260

Participations in associates 13 1,021 113 979 95 983 90

Shares and participations 14 77 9 80 8 73 7

Surplus in funded pension plans 26 1,056 118 230 22 843 77

Non-current financial assets 17 2,198 244 1,832 177 1,656 151

Deferred tax assets 9 1,169 130 1,156 112 1,073 98

Other non-current assets 194 21 178 17 166 15

Total non-current assets 108,909 12,105 113,807 11,023 116,365 10,641

Current assets

Inventories 19 12,511 1,391 11,459 1,110 13,958 1,276

Trade receivables 20 15,616 1,736 16,103 1,560 18,364 1,680

Current tax assets 9 547 61 332 32 682 62

Other current receivables 21 3,216 357 2,711 262 3,117 285

Current financial assets 22 220 24 194 19 642 59

Non-current assets held for sale 23 93 10 105 10 102 9

Cash and cash equivalents 22 1,866 207 5,148 499 5,738 524

Total current assets 34,069 3,786 36,052 3,492 42,603 3,895

Total assets 142,978 15,891 149,859 14,515 158,968 14,536

EQUITY AND LIABILITIES

Equity 24

Owners of the Parent

Share capital 2,350 261 2,350 228 2,350 215

Other capital provided 6,830 677 6,830 661 6,830 625

Reserves –543 –60 2,682 260 3,580 327

Retained earnings 58,618 6,597 55,294 5,355 53,690 4,909

67,255 7,475 67,156 6,504 66,450 6,076

Non-controlling interests 566 63 750 73 802 73

Total equity 67,821 7,538 67,906 6,577 67,252 6,149

Non-current liabilities

Non-current financial liabilities 25 23,459 2,608 30,343 2,939 38,859 3,553

Provisions for pensions 26 3,108 345 3,567 345 3,443 315

Deferred tax liabilities 9 10,800 1,201 9,784 948 9,849 901

Other non-current provisions 27 553 61 477 46 643 59

Other non-current liabilities 28 238 26 185 18 214 19

Total non-current liabilities 38,158 4,241 44,356 4,296 53,008 4,847

Current liabilities

Current financial liabilities 25 13,047 1,450 13,761 1,333 13,170 1,204

Trade payables 13,574 1,509 12,364 1,198 14,186 1,297

Current tax liabilities 9 388 43 385 37 199 18

Current provisions 27 894 99 1,107 107 1,052 96

Other current liabilities2) 29 9,096 1,011 9,980 967 10,101 925

Total current liabilities 36,999 4,112 37,597 3,642 38,708 3,540

Total equity and liabilities 142,978 15,891 149,859 14,515 158,968 14,536

Contingent liabilities and pledged assets, see Notes 32 and 33.

Capital employed 102,227 11,363 108,336 10,493 114,254 10,447

Net debt 34,406 3,825 40,430 3,916 47,002 4,298

1) Closing exchange rate of 9.00 (10.32; 10.94) was applied in translation to EUR.2) As of 2010, bills receivable are included in trade payables instead of in other current liabilities. Reclassification was conducted for the comparative years 2009 and 2008.

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Financial statements, Parent Company

Income statementSEKm Note 2010 2009

Administrative expenses –477 –446

Other operating income 185 196

Other operating expenses –179 –187

Operating profit 34, 35, 36 –471 –437

Financial items 37

Income from participations in Group companies 3,068 35,017

Expenses from participations in other companies –2 –

Interest income and similar profit items 912 360

Interest expenses and similar charges –2,343 –1,589

Total financial items 1,635 33,788

Profit after financial items 1,164 33,351

Appropriations 38 –9 –10

Tax on profit for the year 39 516 433

Profit for the year 1,671 33,774

Statement of comprehensive incomeSEKm 2010 2009

Profit for the year 1,671 33,774

Other comprehensive income – –

Total comprehensive income 1,671 33,774

Cash flow statementSEKm 2010 2009

Operating activities

Profit after financial items 1,164 33,351

Adjustment for non-cash items1) –598 –30,466

566 2,885

Paid tax 0 0

Cash flow from operating activities before changes in working capital 566 2,885

Cash flow from changes in working capital

Change in operating receivables2) 932 368

Change in operating liabilities2) –2,828 –608

Cash flow from operating activities –1,330 2,645

Investing activities

Acquisition of subsidiaries3) – –31,598

Acquisition of non-current assets –115 –53

Sale of property, plant and equipment 10 5

Cash flow from investing activities –105 –31,646

Financing activities

Loans raised 3,428 30,366

Group contribution received/paid 606 1,093

Dividend paid –2,599 –2,458

Cash flow from financing activities 1,435 29,001

Cash flow for the year 0 0

Cash and cash equivalents at the beginning of the year 0 0

Cash and cash equivalents at the end of the year4) 0 0

1) Adjustment for non-cash items 2010 2009

Depreciation of non-current assets 49 47

Change in accrued items –662 –475

Payments related to efficiency programme already recognised – –12

Dividend income in the form of shares in a subsidiary company – –30,001

Other 15 –25

Total –598 –30,466

2) Dealings of the Parent Company with the Swedish subsidiaries relating to tax are recognised as Change in operating receivables and operating liabilities, respectively.

3) Capital contribution and subscription to a new share issue in a Group company.4) The company’s current account is a subsidiary account and is recognised in the balance sheet as

liabilities to subsidiaries.

Supplementary disclosuresInterest and dividends paid and received 2010 2009

Dividends received 3,068 5,016

Interest paid –1,631 –1,840

Interest received 214 139

Total 1,651 3,315

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Balance sheetSEKm Note 31 Dec. 2010 31 Dec. 2009

ASSETS

Fixed assets

Capitalised expenditure for development programmes 1 1

Intangible assets 40 1 1

Buildings and land 6,425 6,359

Machinery and equipment 16 1

Tangible assets 41 6,441 6,360

Shares 42 124,005 124,005

Receivables from subsidiaries 43 471 269

Other non-current receivables 128 130

Non-current financial assets 124,604 124,404

Total fixed assets 131,046 130,765

Current assets

Receivables from subsidiaries 43 6,005 2,281

Current tax assets 39 18 18

Other current receivables 44 96 123

Cash and bank balances 0 0

Total current assets 6,119 2,422

Total assets 137,165 133,187

SEKm Note 31 Dec. 2010 31 Dec. 2009

EQUITY, PROVISIONS AND LIABILITIES

Equity 45

Share capital 2,350 2,350

Revaluation reserve 1,363 1,363

Statutory reserve 7,283 7,283

Total restricted equity 10,996 10,996

Retained earnings 37,088 5,085

Profit for the year 1,671 33,774

Total unrestricted equity 38,759 38,859

Total equity 49,755 49,855

Untaxed reserves 38 156 147

Provisions

Provisions for pensions 46 453 415

Provisions for taxes 39 596 213

Other provisions 1 –

Total provisions 1,050 628

Non-current liabilities

Non-current interest-bearing liabilities 47 9,256 7,566

Other non-current liabilities 0 0

Total non-current liabilities 9,256 7,566

Current liabilities

Liabilities to subsidiaries 43 76,743 74,802

Trade payables 18 11

Other current liabilities 48 187 178

Total current liabilities 76,948 74,991

Total equity, provisions and liabilities 137,165 133,187

Contingent liabilities 49 26,441 43,930

Pledged assets 50 155 155

Change in equity (Refer also to Note 45)

SEKm Share capital Revaluation reserve Statutory reserveProfit brought forward and profit for the year Total equity

Equity at 31 December 2008 2,350 1,363 7,283 7,241 18,237

Group contributions 410 410

Tax effect of Group contributions –108 –108

Total comprehensive income 33,774 33,774

Dividend, SEK 3.50 per share –2,458 –2,458

Equity at 31 December 2009 2,350 1,363 7,283 38,859 49,855

Group contributions 1,123 1,123

Tax effect of Group contributions –295 –295

Total comprehensive income 1,671 1,671

Dividend, SEK 3.70 per share –2,599 –2,599

Equity at 31 December 2010 2,350 1,363 7,283 38,759 49,755

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Notes

Note 1 ACCoUNtING PRINCIPLeS

The most important accounting principles applied in the preparation of this annual report are set out below. The same principles are usually applied in both the Parent Company and the Group. In some cases, the Parent Company applies principles other than those used by the Group and, in such cases, these principles are specified under a separate heading.

BASIS FoR PRePARAtIoNThe SCA Group’s financial statements are prepared in accordance with the Annual Accounts Act and International Financial Reporting Standards (IFRS)/International Accounting Stand-ards (IAS), as adopted within the EU, and the Swedish Financial Reporting Board, Recom-mendation RFR 1, Supplementary accounting principles for Groups.

The Parent Company’s financial statements are prepared in accordance with the Swed-ish Financial Reporting Board’s recommendation RFR 2, Reporting by Legal Entities, and the Annual Accounts Act. The accounts for both the Group and the Parent Company pertain to the financial year that ended on 31 December 2010. SCA applies the historical cost method for measurement of assets and liabilities except for biological assets (standing timber), avail-able-for-sale financial assets and financial assets and liabilities, including derivative instru-ments, measured at fair value through profit or loss. In the Parent Company, biological assets or the aforementioned financial assets and liabilities are not measured at fair value.

INtRoDUCtIoN oF NeW AND ReVISeD IAS/IFRSNew standards and amendments (IAS/IFRS) and interpretations (IFRIC) that came into effect in 2010 and were adopted by the eU:IFRS 3 Business Combinations has been revised (effective 1 July 2009). The revision applies prospectively to new acquisitions in or after 2010. The purchase consideration and any contin-gent consideration for acquiring a business must be recognised at fair value on the date of acquisition. Transaction costs may no longer be included in cost, but must be expensed directly. In connection with step acquisitions when a controlling interest is achieved, any net assets purchased earlier in the acquired units are remeasured at fair value and the gain/loss from the remeasurement is recognised in profit or loss. The effects of the remeasurement upon payment of the liability related to a contingent consideration shall be recognised in profit for the period. Non-controlling interests in connection with acquisitions of less than 100% are deter-mined on an acquisition-by acquisition basis, either as a proportional share of the fair value of identifiable net assets excluding goodwill according to previous rules (partial goodwill) or at fair value, which means that goodwill is also recognised on non-controlling interests (full goodwill). The Group applies these amendments to IFRS 3 to new acquisitions from 1 January 2010.

IAS 27 Consolidated and Separate Financial Statements has been revised (effective 1 July 2009). Losses attributable to non-controlling interests will be recognised even if this results in a negative balance for the interest. Transactions related to non-controlling interests in which a con-trolling influence is retained will be recognised as an equity transaction. If the controlling influence is lost upon divestment, the gain/loss is recognised in profit or loss; any residual holding in the divested business is then measured at fair value on the date of divestment and the effect is also recognised in profit or loss. The Group applies the amendments to IAS 27 from 1 January 2010.

In addition to the above changes, the following amendments of standards (IAS/IFRS) and new and amended interpretations (IFRIC) came into effect in 2010 and were adopted by the EU. None of these changes had a material impact on SCA’s financial statements.

– IAS 39 Financial Instruments: Recognition and Measurement– IFRIC 9 Reassessment of Embedded Derivatives– IFRIC 12 Service Concession Arrangements– IFRIC 15 Agreements for the Construction of Real Estate– IFRIC 17 Distribution of Non-cash Assets to Owners – IFRIC 18 Transfers of Assets from Customers– Improvements to IFRS (April 2009)

New standards, amendments and interpretations adopted by the eU, but not yet effective and not applied in advance:IFRIC 14 The Limit on a Defined Benefit Asset, etc. (effective 1 January 2011). This interpre-tive statement was changed with regard to how voluntary advance payments to a pension plan for which there is a minimum funding requirement should be recognised. SCA will apply the new interpretation, but the assessment is that it will not have any material impact on SCA’s financial statements.

In addition to the above changes, the following amendments of standards (IAS/IFRS) and new and amended interpretations (IFRIC) were adopted by the EU and will enter into effect in 2011. None of these changes are considered to have a material impact on SCA’s financial statements:

– IFRS 1 First-time Adoption of IFRS– IFRS 2 Share-based Payments– IAS 24 Related Party Disclosures– IAS 32 Financial Instruments: Presentation– IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

New standards, amendments and interpretations published by IASB, but either not yet effective or not yet adopted by the eU:IFRS 9 Financial Instruments (effective 1 January 2013). The first of three stages of the new standard was presented as part of the reform that aims to entirely replace IAS 39 with a

principle-based and less complex accounting standard. The first stage concerns recognition and measurement of financial assets and liabilities. According to the new standard, two cat-egories of financial assets exist: 1) Financial assets measured at amortised cost and 2) Financial assets measured at fair value. A financial asset shall be measured at amortised cost only if both of the following conditions are met: 1) the instrument is handled in accord-ance with the company’s business model on the basis of contractual cash flows and 2) the cash flows of the instrument are attributable to the payment of nominal amounts and inter-est. All other instruments will be measured at fair value where changes in fair value are, as the main principle, recognised in the profit or loss for the period. Gains and losses related to equity instruments shall be recognised either in profit or loss or other comprehensive income, provided the instrument is not held for sale. No recirculation to the income state-ment occurs on gains or losses recognised in comprehensive income. The assessment is that IFRS 9 will only have a marginal impact on SCA’s financial statements.

IFRS 7 Financial Instruments: Disclosures (effective 1 July 2011) has been amended with regard to disclosure requirements for risk exposure and disclosures on continued involve-ment in financial assets that are transferred, but do not meet the requirements for derecogni-tion from the balance sheet. SCA will apply the new disclosure requirements, but the current assessment is that they will not have any material impact on SCA’s financial statements.

In addition to the above, the following amended standards (IAS/IFRS) and new and amended interpretations (IFRIC) have been published by IASB, but are either not yet effec-tive or not yet adopted by the EU. None of these changes are considered to have a material impact on SCA’s financial statements:

– IAS 12 Income Taxes (effective 1 January 2012)– IFRS 1 First-time Adoption of IFRS– Improvements to IFRS (May 2010)

USe oF ASSeSSMeNtSThe preparation of financial statements in conformity with IFRS and generally accepted Swedish accounting principles requires assessments and assumptions to be made that affect recognised asset and liability items and income and expense items, respectively, as well as other information disclosed. The actual results may differ from these assessments.

CoNSoLIDAteD ACCoUNtSThe consolidated accounts are prepared in accordance with the Group’s accounting princi-ples and include the accounts of the Parent Company and all Group companies in accord-ance with the definitions below. Group companies are consolidated from the date the Group exercises control or influence over the company according to the definitions provided under the respective category of Group company below. Divested Group companies are included in the consolidated accounts until the date the Group ceases to control or exercise influence over the companies. Intra-Group transactions have been eliminated.

Parent Company:The Parent Company recognises all holdings in Group companies at cost after deduction for any accumulated impairment losses.

SubsidiariesAll companies in which the Group holds or controls more than 50% of the votes or where the Group alone, through agreement or in another manner, exercises control, are consolidated as subsidiaries. The consolidated financial statements are prepared in accordance with the purchase method. In business combinations, acquired assets and assumed liabilities are identified and classified, and measured at fair value on the date of acquisition (also known as an acquisition analysis). In step acquisitions when a controlling interest is achieved, any net assets acquired earlier in the acquired units are remeasured at fair value and the result of the remeasurement is recognised in profit or loss. The effects of the remeasurement upon pay-ment of the liability related to a contingent consideration are recognised in profit for the period. If the controlling influence is lost upon divestment, the result is recognised in profit or loss; any residual holding in the divested business is then measured at fair value on the date of divestment and the effect is also recognised in profit or loss. Transaction costs in conjunc-tion with acquisitions are not included in cost, but rather expensed directly.

Joint venturesJoint ventures are defined as companies in which SCA together with other parties through an agreement, has shared control over operations. Joint ventures are recognised according to the proportional consolidation method. Measurement of acquired assets and liabilities is carried out in the same way as for subsidiaries.

AssociatesAssociates are companies in which the Group exercises a significant influence without the partly owned company being a subsidiary or a joint venture. Normally, this means that the Group owns between 20% and 50% of the votes. Accounting for associates is carried out according to the equity method and they are initially measured at cost. Valuation of acquired assets and liabilities is performed in the same manner as for subsidiaries and the carrying amount for associates includes any goodwill and other Group adjustments.

The Group’s share of profit after tax arising in the associate after the acquisition is recog-nised on one line in the consolidated income statement. Share in profits is calculated on the basis of SCA’s share of equity in the respective associate.

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Non-controlling interestsNon-controlling interests are recognised as a separate item in the Group’s equity. Profit or loss and every component of other comprehensive income are attributable to the owners of the Parent and to non-controlling interests. Losses attributable to non-controlling interests are recognised even if this results in a negative balance for the interest. In connection with acquisitions of less than 100% when a controlling influence is achieved, non-controlling interests are determined either as a proportional share of the fair value of identifiable net assets excluding goodwill or at fair value. Subsequent acquisitions up to 100% and divest-ments of participations in a subsidiary that do not lead to a loss of controlling influence are recognised as an equity transaction.

tRANSLAtIoN oF FoReIGN CURReNCYFunctional currency and presentation currencyThe companies in the Group prepare their financial statements in the currency used in the primary economic environment in which they operate. This is known as the functional cur-rency. These reports provide the basis for the consolidated financial statements.

The consolidated financial statements are prepared in Swedish kronor (SEK), which is the Parent Company’s functional currency and therefore the presentation currency.

translation of foreign Group companiesBalance sheets and income statements for all Group companies whose functional currency is not the presentation currency are translated into the Group’s presentation currency using the following procedures:• assetsandliabilitiesforeachbalancesheetpresentedaretranslatedattheclosingrateat

the date of the balance sheet,• incomeandexpensesforeachincomestatementpresentedaretranslatedattheaverage

exchange rate for the respective year,• alltranslationdifferencesthatarisearerecognisedasaseparateitemdirectlyinconsoli-

dated equity under other comprehensive income.

Exchange differences arising on the financial instruments held to hedge these net assets are also taken directly to consolidated equity under other comprehensive income. When a for-eign operation is divested, both translation differences and exchange differences in financial instruments held for the currency hedging of net assets in the income statement are recog-nised as part of the gain or loss on disposal. Goodwill and fair value adjustments that arise on acquisition are treated as assets and liabilities of the operation and translated according to the same principles as the foreign operation. The financial statements of a subsidiary in a hyperinflationary country are adjusted for inflation using the price index for the country in question before these statements are included in the consolidated financial statements.

tRANSACtIoNS AND BALANCe SHeet IteMS IN FoReIGN CURReNCYTransactions in foreign currency are translated to a functional currency using the exchange rate prevailing on the transaction date. Monetary receivables and liabilities in foreign currency are remeasured at closing date rates at each balance sheet date. Exchange gains or losses that arise from such remeasurement and on payment of the transaction are recognised in profit or loss, except for – as stated in IAS 39 – approved hedging transactions relating to cash flows or net investments where the gain or loss is recognised in equity under other com-prehensive income. Gains and losses on operating receivables and liabilities are recognised net and reported within operating profit. Gains and losses on borrowing and financial invest-ments are recognised as other financial items. Change in the fair value of monetary securities issued in foreign currency and classified as available-for-sale financial assets is analysed and the change attributable to changed exchange rates is recognised in profit or loss, while other unrealised change is recognised in equity under other comprehensive income. Translation dif-ferences for non-monetary financial assets and liabilities valued at fair value through profit or loss are recognised as part of the fair value gain or loss. Translation differences for non-mone-tary financial assets, classified as available-for-sale assets are taken directly to equity under other comprehensive income. Non-monetary assets and liabilities recognised at historical cost are translated at the exchange rate prevailing on the transaction date.

ReVeNUe ReCoGNItIoNSales revenue, synonymous with net sales, comprises the fair value of the consideration received or receivable for sold goods and services within the Group’s ordinary activities. Revenue is recognised when delivery to the customer has taken place according to the terms of the sale. Other income includes compensation for sales that are not included in the Group’s ordinary activities and includes rental revenue, which is recognised in the period covered by the rental contract, royalties and similar items, which are recognised in accordance with the implied financial effect of the contract. Interest income is recognised in accordance with the effective interest method. Dividends received are recognised when the right to receive a dividend has been established.

SeGMeNt RePoRtINGOperating segments are recognised in a manner that complies with the internal reporting submitted to the highest authority in the decision-making base. The highest authority in the decision-making base is the function that is responsible for allocating resources and assess-ing the result of the operating segments. At SCA, this function has been identified as the company’s President, who is responsible for and manages the day-to-day administration of

the Group in accordance with the Board’s guidelines and terms of reference. The Executive Vice President and Corporate Senior Management support him in his work; see the section Responsibility and governance, Corporate governance on pages 36-37. SCA’s four busi-ness areas, Personal Care, Tissue, Packaging and Forest Products, comprise the operating segments, whereby Forest Products is divided into two segments, Publication papers and Pulp, timber and solid-wood products.

LeASINGLeases for non-current assets in which the Group essentially carries all the risks and rewards incidental to ownership of an asset are classified as finance leases. The leased asset is rec-ognised as a non-current asset and a corresponding financial liability is recognised among interest-bearing liabilities. The initial value of both these items comprises the lower of the fair value of the assets or the present value of the minimum lease payments. Future lease pay-ments are divided between amortisation of the liability and financial expenses, so that each reporting period is charged with an interest amount that corresponds to a fixed interest rate on the recognised liability for the respective period. The leased asset is depreciated accord-ing to the same principles that apply to other assets of the same nature. If it is uncertain whether the asset will be taken over at the end of the leasing period, the asset is depreciated over the lease term if this is shorter than the useful life that applies to other assets of the same nature. Leases for assets in which the risks and rewards incidental to ownership are essentially carried by the lessor are classified as operating leases. The lease payments are recognised as an expense on a straight-line basis over the lease term.

Parent Company:The Parent Company reports all leases as operating leases.

IMPAIRMeNt LoSSeSAssets that have an indefinite useful life are not depreciated, but are annually tested for impairment. The value of depreciated assets is tested for impairment whenever there are indications that the carrying amount might not be recoverable. In cases in which the carrying amount of an asset exceeds its estimated recoverable amount, an impairment loss is recog-nised on the asset down to the recoverable amount. An impairment loss recognised earlier is reversed, if the reasons for the earlier impairment no longer exist. However, a reversal is not higher than the carrying amount would have been if an impairment loss had not been recog-nised in previous years. When testing for impairment of goodwill, the assets are grouped in cash-generating units and assessments are made on the basis of these units’ future cash flows. Impairment losses on goodwill are never reversed.

tAXeSThe Group’s tax expense comprises deferred tax and current tax on Group companies’ rec-ognised profits during the accounting period, adjustments relating to tax for prior periods as well as other changes in deferred taxes for the period. Interest items attributable to income tax and withholding taxes deducted at source on intra-Group transactions are also recog-nised as income tax. Deferred tax is calculated and recognised on all temporary differences between the tax base and the carrying amount. Deferred tax assets relating to deductible temporary differences, loss carryforwards and tax credits are recognised to the extent it is probable that deductions can be made against future profits.

Deferred tax is not recognised for non-deductible goodwill, or for temporary differences that arise on initial recognition of an asset or liability, and which are not attributable to a busi-ness combination and do not affect either recognised profit or taxable profit.

Deferred taxes are measured at their nominal amount and based on the tax rates enacted or substantively enacted on the balance sheet date. For items recognised in profit or loss, related tax effects are also recognised in profit or loss. For items recognised in equity under other com-prehensive income, related tax effects are also recognised in equity under other comprehensive income. Deferred taxes relating to temporary differences attributable to investments in subsidi-aries and participations in joint ventures are not recognised in SCA’s consolidated financial statements since SCA AB, in all cases, can control the time of reversal of the temporary differ-ences and it is not considered probable that such reversal will occur in the near future.

Parent Company:Due to the links between accounting and taxation, the deferred tax liability on untaxed reserves in the Parent Company is recognised in the Parent Company’s annual accounts as a component of untaxed reserves.

INtANGIBLe ASSetSGoodwillThe compensation transferred in a business combination is measured at fair value. If in con-nection with a business combination, the total of the transferred compensation, the value of non-controlling interests and the fair value of previous shares of equity in the acquired com-pany in step acquisitions exceeds the value of the net assets in the acquired company calcu-lated on the date of acquisition, the difference is recognised as consolidated goodwill. If the total of the transferred compensation, the value of non-controlling interests and the fair value of previous shares of equity in the acquired company in step acquisitions is less than the value of the net assets in the acquired company calculated on the date of acquisition, the dif-ference is recognised directly in profit or loss. Acquisitions of non-controlling interests are measured on an acquisition-by-acquisition basis, either as a proportional share of the fair

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value of identifiable net assets excluding goodwill (partial goodwill) or at fair value, which means that goodwill is also recognised on non-controlling interests (full goodwill). Goodwill that arises in acquisitions of associates is included in the carrying amount of the associate. Goodwill is distributed to the cash-generating units within each operating segment that is expected to benefit from the business combination for which the goodwill arose. Goodwill is tested annually for any impairment requirement. Goodwill is recognised at cost reduced by accumulated impairment losses. Impairment losses on goodwill are not reversed. Net gains or losses from the sale of Group companies include the remaining carrying amount of the goodwill attributable to the divested unit.

trademarksTrademarks are recognised at cost after any accumulated amortisation and accumulated impairments. Trademarks that are found to have an indefinite useful life are not amortised, but instead tested annually for impairment in the same manner as goodwill. Cash-generating units identified for these trademarks comprise the geographical market where the trademark exists. Trademarks with a limited useful life are amortised on a straight-line basis during their anticipated useful life, which varies between three and seven years.

Research and developmentResearch expenditure is recognised as an expense as incurred. In cases in which it is difficult to separate the research phase from the development phase in a project, the entire project is treated as research and expensed immediately. Identifiable expenditure for development of new products and processes is capitalised to the extent it is expected to provide future eco-nomic benefits. In other cases, development costs are expensed as incurred. Capitalised expenditure is depreciated in a straight line from the date when the asset can start to be used or produced commercially and during the estimated useful life of the asset. The depre-ciation period is between five and ten years.

emission allowances and costs for carbon dioxide emissionsEmission allowances relating to carbon dioxide emissions are recognised as an intangible asset and as deferred income (liability) when they are received. Allowances are received free of charge and measured and recognised at market value as of the date to which the alloca-tion pertains. For allocated emission allowances, the recognised cost and provisions for emissions amount to the market value as of the date to which the allocation pertains. For purchased emission allowances, the recognised cost and provisions for emissions amount to the purchase price. During the year, the initial liability for emission allowances received is dissolved over profit or loss as income in pace with carbon dioxide emissions made. If the market price of emission allowances on the balance sheet date is less than recognised cost, any surplus emission allowances that are not required to cover emissions made are impaired to the market price applying on the balance sheet date. In conjunction with this, the remain-ing part of the deferred income is recognised as income by a corresponding amount and therefore no net effect occurs in profit or loss. The emission allowances are used as payment in the settlement with the state regarding liabilities for emissions. If the emission allowances received do not cover emissions made, SCA makes a provision for the deficit valued at the market value on the balance sheet date. Sales of surplus emission allowances are rec-ognised as income on the settlement date.

other intangible assetsIntangible assets also include patents, licenses and other rights. At acquisition of such assets, the cost of the acquisition is recognised as an asset and amortised on a straight-line basis over the anticipated useful life, which varies between 3 and 20 years.

PRoPeRtY, PLANt AND eQUIPMeNtProperty, plant and equipment are recognised at cost after deduction for accumulated depreciation and any accumulated impairment. Cost includes expenditure that can be directly attributed to the acquisition of the asset as well as transfer from equity of the gains and losses from approved cash flow hedges relating to purchases in foreign currency of property, plant and equipment. The cost of properties and production facilities included in major projects includes, unlike costs for other investments, expenditure for running-in and start-up. Expenditure for interest during the construction and assembly period is included in cost for qualifying investment projects. All expenditure for new investments in progress is capitalised. All other forms of repair and maintenance are recognised as expenses in the income statement in the period in which they are incurred. Land is regarded as having an indefinite useful life and is therefore not depreciated. Depreciation of other property, plant and equipment is performed on a straight-line basis down to the estimated residual value of the asset and during the anticipated useful life of the asset. Useful lives are assessed as:

Note 1 CoNt. Number of years

Pulp and paper mills, sawmills 10–25

Converting machines, other machinery 7–18

Tools 3–10

Vehicles 4–5

Buildings 15–50

Energy plants 15–30

Computers 3–5

Office equipment 5–10

Harbours, railways 20–30

Land improvements, forest roads 10–20

The residual values and useful lives of assets are tested on a continuous basis and adjusted when required.

Parent Company:The Parent Company’s property, plant and equipment, which are recognised in accordance with the Group’s accounting principles, include standing timber, which in the Group is classi-fied as a biological asset. No systematic depreciation or changes in value in conjunction with felling is carried out in the Parent Company. Collective revaluation of forest assets has occurred. The revaluation amount was placed in a revaluation reserve in equity.

BIoLoGICAL ASSetSThe Group’s standing timber is defined and recognised as a biological asset. Forest land and forest roads are classified as land and land improvements. The biological assets are valued and recognised at fair value after deduction for estimated selling costs. The change in value is recognised in the profit or loss. The fair value of the Group’s standing timber is calculated as the present value of anticipated future cash flow from the assets before tax. The calcula-tion is based on existing, sustainable felling plans and assessments regarding growth, tim-ber prices, felling costs and silviculture costs, including costs for statutory replanting. Envi-ronmental restrictions and other limitations are taken into account and the calculation is per-formed for a production cycle that SCA estimates at an average of 100 years. The discount factor is based on a normal forest company’s weighted average cost of capital (WACC).

Parent Company:The Parent Company reports standing timber as property, plant and equipment at historical cost.

FINANCIAL INStRUMeNtSFinancial instruments recognised in the balance sheet include cash and cash equivalents, securities, other financial receivables, trade receivables, trade payables, loans and deriva-tives.

Recognition in and derecognition from the balance sheetPurchases and sales of financial instruments are recognised in the financial statements on the trade date, with the exception of loan receivables, available-for-sale financial assets and other financial liabilities, all of which are recorded on the settlement date. Financial instru-ments are initially recognised at cost, which corresponds to the fair value of the instrument including transaction costs. Financial assets are derecognised from the balance sheet when the risk and the right to receive cash flows from the instrument have ceased or been trans-ferred to another counterparty. Financial liabilities are derecognised from the balance sheet when SCA has met its commitments or they have been otherwise extinguished. SCA reports financial instruments with a remaining maturity of less than 12 months as current assets and liabilities and those that exceed 12 months as non-current assets and liabilities. The duration of utilised loans under syndicated lines of credit are recognised with the same duration as the line of credit. Recognition takes place on the basis of the categories specified below.

MeasurementThe fair value of financial instruments is calculated on the basis of prevailing market listings on the balance sheet date. For financial assets and listed securities, the actual prices on the balance sheet date are used. In the absence of market listings, SCA determines fair values with the aid of common valuation models, such as discounting of future cash flows to listed market rates for each duration. These calculated cash flows are established based on avail-able market information. Impairment of financial assets takes place when there is objective proof of impairment, such as cessation of an active market or where it is probable that the debtors cannot meet their commitments. For disclosures in a note relating to non-current loans, current market interest rates and an estimate of SCA’s risk premium are taken into account in fair value calculations. The fair value of short-term loans and investments is con-sidered to correspond to the carrying amount, since a change in market interest rates does not have a significant effect on market value.

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Cash and cash equivalentsCash and cash equivalents are defined as cash and bank balances as well as short-term investments with a maturity of less than three months from the acquisition date. Restricted deposits are not included in cash and cash equivalents.

Classification and subsequent recognitionClassification of financial instruments is determined on the original acquisition date, and the purpose of the transaction determines the choice of category. SCA classifies its financial instruments in the categories below.

Financial assets measured at fair value through profit or lossAssets are classified in this category when the intention is to sell in the short term. Derivatives with a positive market value are classified in this category if they are not identified as hedges and meet the requirements for hedge accounting. Assets in this category are recognised continuously at fair value and changes in value are recognised in profit or loss. Only financial derivatives were classified in this category during the year.

Held-to-maturity investmentsHeld-to-maturity investments are defined as financial assets that are not derivatives and that have fixed or determinable payments and that SCA intends and is able to hold to maturity. Assets in this category are measured at amortised cost applying the effective interest method, which means they are accrued so that a constant return is obtained. No financial instrument was classified in this category during the year.

Loans and trade receivablesLoans and trade receivables are financial assets, which are not derivatives, with fixed or determinable payments, that are not quoted in an active market. Receivables arise when SCA provides money, goods or services directly to another party without any intention of conducting trading in the receivables. Assets in this category are measured at amortised cost less a potential provision for impairment. Trade receivables are recognised in the amount at which they are expected to be paid, based on an individual assessment of bad debts. Any impairment of trade receivables affects SCA’s operating profit.

Available-for-sale financial assetsThis category includes financial assets that are not derivatives and that are designated in this category at initial recognition or that have not been classified in any other category. Assets in this category are measured continuously at fair value. Changes in value are recognised in equity under other comprehensive income. A change attributable to exchange rate move-ments, however, is recognised in profit or loss. When the asset is sold, the cumulative gain or loss that was recognised in equity is recognised in profit or loss.

Financial liabilities at fair value through profit or lossThis category includes derivatives with negative fair values that are not used for hedge accounting and financial liabilities held for trading. Liabilities in this category are continuously measured at fair value and changes in value are recognised in profit or loss. Only derivatives were classified in this category during the year.

Financial liabilities measured at amortised costThis category includes financial liabilities that are not held for trading. These are recognised initially at fair value, net after transaction costs, and subsequently at amortised cost accord-ing to the effective interest method.

Accounting for derivatives used for hedging purposesAll derivatives are initially and continuously recognised at fair value in the balance sheet. Gains and losses on remeasurement of derivatives used for hedging purposes are recog-nised as described below. In hedge accounting, the relationship between the hedge instru-ment and the hedged item is documented. Assessment of the effectiveness of the hedge is also documented, both when the transaction is initially executed and on an ongoing basis. Hedge effectiveness is the extent to which the hedging instrument offsets changes in value in a hedged item’s fair value or cash flow.

Cash flow hedgesGains and losses on remeasurement of derivatives intended for cash flow hedging are rec-ognised in equity under other comprehensive income and reversed to profit or loss at the rate at which the hedged cash flow affects profit or loss. Any ineffective part of the change in value is recognised directly in profit or loss. If a hedge relationship is interrupted and cash flow is still expected, the result is recognised in equity under other comprehensive income until the cash flow affects the result. If the hedge pertains to a balance sheet item, the result is transferred from equity to the asset or liability to which the hedge relates when the value of the asset or liability is determined for the first time. In cases in which the forecast cash flow that forms the basis of the hedging transaction is no longer assessed as probable, the

cumulative gain or loss that is recognised in equity under other comprehensive income is transferred directly to profit or loss. Cash flow hedges relating to energy affect the energy costs, that is, cost of goods sold. Transaction exposure’s cash flow hedges affect consoli-dated net sales and expenses. Cash flow hedges relating to interest expenses affect net financial items.

Hedges of net investments in foreign operationsGains and losses on remeasurement of derivates intended to hedge SCA’s net investments in foreign operations are recognised in equity under other comprehensive income. The cumulative gain or loss in equity is recognised in profit or loss in the event of divestment of the foreign operation.

Fair value hedgesThe gain or loss from remeasurement of a derivative relating to fair value hedges is recog-nised in profit or loss with changes in fair value of the asset or liability exposed to the hedged risk. For SCA, this means that non-current loans that are subject to hedge accounting are discounted without a credit spread to market interest rates and meet inherent interest rate derivatives’ discounted cash flows at the same rate. Since the entire change in value from the derivative is recognised directly in profit or loss, any ineffectiveness is recognised on an ongoing basis in profit or loss.

Financial hedgesWhen SCA conducts hedges and the transactions do not meet requirements for hedge accounting according to IAS 39, changes in fair value of the hedging instrument are recog-nised directly in profit or loss.

INVeNtoRIeSInventories are recognised at the lower of cost and net realisable value on the balance sheet date. Cost is calculated using the first-in, first-out (FIFO) or weighted average cost formula. However, the cost of goods produced and segregated for specific projects is assigned by using specific identification of their individual costs. The cost of finished goods and work in progress includes raw materials, direct labour, other direct expenses and production-related overheads, based on a normal production level. Interest expenses are not included in meas-urement of inventories. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and sale of the item. The holding of felling rights for standing timber is valued at contract prices, which on average do not exceed the lower of net realisable value and cost.

NoN-CURReNt ASSetS HeLD FoR SALe Non-current assets (and disposal groups) are classified as Non-current assets held for sale if their value, within one year, will be recovered through a sale and not through continued utili-sation in operations. On the reclassification date, the assets and liabilities are measured at the lower of fair value minus selling costs and the carrying amount. Following reclassification, no depreciation is carried out on these assets.

Parent Company:Non-current assets held for sale are not reclassified and depreciation does not cease. Instead, if such assets exist, the information is disclosed.

eQUItYTransaction costs directly relating to the issue of new shares or options are recognised, net after tax, in equity as a reduction in the issue proceeds. Expenditure for the purchase of SCA’s treasury shares reduces retained earnings in equity in the Parent Company and the portion of consolidated equity that pertains to owners of the Parent. When these are sold, the sales proceeds are included in retained earnings in the equity pertaining to owners of the Parent.

eMPLoYee BeNeFItSPensionsThere are many defined-contribution and defined-benefit pension plans within the Group, of which most of these have plan assets. The liability recognised in the balance sheet for defined-benefit pension plans is the present value of the obligation on the balance sheet date minus the fair value of the plan assets. Funded plans with net assets, that is, plans with assets exceeding obligations, are recognised as a financial asset. The defined-benefit obli-gation is calculated annually by independent actuaries using the Projected Unit Credit Method. The obligation is valued at the present value of anticipated future cash flows using a discount rate that corresponds to the interest on first-class corporate bonds or, where these do not exist, government bonds issued in the currency in which the benefits will be paid and with a remaining maturity that is comparable to the actual pension liability. Actuarial gains and losses are recognised directly in equity under other comprehensive income in the period in which they arise. The total cost relating to defined-benefit plans is divided between per-

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sonnel costs and financial expenses. Financial expenses are calculated from the net value of each plan at the beginning of the year and the discount factor decided for each country. The Group’s payments relating to defined-contribution plans are recognised as an expense dur-ing the period the employees carry out the service to which the payment relates. Prepaid contributions are only recognised as an asset to the extent the Group is entitled to a repay-ment or reduction of future payments. Past service costs are recognised directly in profit or loss unless changes in the pension plan are subject to employees remaining in service for a specific, stated period. In such cases, the cost is allocated on a straight-line basis over this period. A special payroll tax (corresponding to contributions) is calculated on the difference between the pension cost determined according to IAS 19 and the pension cost determined according to the rules applied in the legal entity. Payroll tax is recognised as an expense in profit or loss except with regard to actuarial gains and losses where the payroll tax, like the actuarial gains and losses, is recognised directly in equity under other comprehensive income.

Parent Company:The Parent Company applies the regulations in “Tryggandelagen” (Swedish act safeguarding pension obligations). Accounting complies with FAR SRS’s (the institute for the accountancy profession in Sweden) accounting recommendation No. 4, Accounting for pension liabilities and pension costs. The main difference compared with IAS 19 is that Swedish practice dis-regards future increases in salaries and pensions when calculating the present value of the pension obligation. This present value includes, however, a special reserve for future pay-ments of pension supplements indexed for inflation. Both defined-contribution and defined-benefit plans exist in the Parent Company.

other post-retirement benefitsSome Group companies provide post-retirement healthcare benefits. The obligation and anticipated costs for these benefits has been calculated and recognised in a similar manner to that applying to defined-benefit pension plans.

Severance paySeverance pay is paid when the Group issues notice to an employee prior to the retirement date or when an employee voluntarily accepts retirement in exchange for such compensa-tion. Severance pay is recognised as an expense when the Group has an obligation to com-pensate employees whose employment was terminated early.

PRoVISIoNSProvisions for dilapidations, restructuring or legal disputes are recognised when the Group has, or can be considered to have, an obligation as the result of events that have occurred and it is probable that payments will be required to fulfil the obligation. In addition, it must be possible to make a reliable estimate of the amount to be paid. The provision is valued at the present value of the anticipated future expenditure to settle the obligation. If the impact of time is material, discounting is applied with an interest rate before taxes. Increases in provisions due to time are recognised on an ongoing basis as an interest expense in profit or loss.

GoVeRNMeNt GRANtSGovernment grants are recognised at fair value when there is reasonable assurance the grants will be received and that the Group will comply with the conditions attached to them. Government grants related to acquisition of assets are recognised in the balance sheet by the grant reducing the carrying amount of the asset. Government grants received as com-pensation for costs are accrued and recognised in profit or loss during the same period as the costs. If the government grant or assistance is neither related to the acquisition of assets nor to compensation for costs, the grant is recognised as other income.

Note 1 CoNt. Note 2 KeY ASSeSSMeNtS AND ASSUMPtIoNS

Preparation of annual accounts and application of different accounting standards are often based on management assessments or on assumptions and estimates that are regarded as reasonable under the prevailing circumstances. These assumptions and estimates are often based on historical experience, but also on other factors, including expectations of future events. With other assumptions and estimates, the result may be different and the actual result will, by definition, seldom concur with the estimated result.

The assumptions and estimates that SCA considers to have the greatest impact on earn-ings, as well as assets and liabilities, are discussed below.

VALUAtIoN oF BIoLoGICAL ASSetSSince a market price or other comparable value does not exist for assets the size of SCA’s, the biological assets, that is, standing forest, are measured at the value of anticipated future cash flows.

Calculation of these cash flows is based on the felling plan from the most recent forest survey that is available. Forest surveys are updated every ten years. The calculation is also based on assumptions with regard to growth, selling prices, costs for felling and silviculture as well as costs for replanting, which is a prerequisite for felling. These assumptions are mainly based on experience and are only changed when a change in price and cost levels is assessed as being long term. The cash flow covers a production cycle which SCA estimates to amount to an average of 100 years. The discount factor used is the weighted average cost of capital (WACC) that is normally used in valuations of similar assets.

The consolidated value of biological assets at 31 December 2010 amounted to SEK 26,069m. For further information see Note 12.

GooDWILLEach year, the Group examines whether there is any impairment requirement relating to goodwill. Goodwill is divided among cash-generating units and these concur with the Group’s operating segments.

The recoverable amount for the cash-generating units is determined by calculating value in use. This calculation is based on the Group’s existing strategic plans. These plans rest on market-based assumptions and include anticipated future cash flows for the existing opera-tions during the next ten-year period. Cash flows beyond the ten-year period are taken into account by applying an operating surplus multiple to sustained cash flow. This multiple con-curs with current market multiples for similar operations.

The discount factors used in the present value calculation of the anticipated future cash flows is the current weighted average cost of capital (WACC) established within the Group for the markets in which the cash-generating units conduct operations. Impairment testing for the year did not indicate any impairment requirement. Goodwill for the Group at 31 December 2010 amounted to SEK 17,688m. For further information see Note 10.

PeNSIoNSCosts, as well as the value of pension obligations for defined-benefit pension plans, are based on actuarial calculations that are based on assumptions on discount rate, anticipated return on plan assets, future salary increases, inflation and demographic conditions.

The discount rate assumption is based on high-quality fixed-income investments with maturities corresponding to the Group’s existing pension obligations. The funded assets include equities and bonds. The expected return on these is calculated on the basis of the assumption that the return on bonds equals the interest on a 10-year government bond and that the return on equities amounts to the same rate but with an addition for risk premium.

The Group’s net defined-benefit obligations and the fair value of plan assets amounted to SEK 2,051m at 31 December 2010. For further information see Note 26.

tAXeSDeferred tax is calculated on temporary differences between the carrying amounts and the tax values of assets and liabilities. There are primarily two areas where assumptions and assessments affect recognised deferred tax. One is assumptions and assessments used to determine the carrying amounts of the different assets and liabilities. The other is assump-tions and assessments related to future taxable profits, where future utilisation of deferred tax assets depends on this. As at 31 December 2010, SEK 1,169m was recognised as deferred tax assets based on such assumptions and assessments. Significant assessments and assumptions are also made regarding recognition of provisions and contingent liabilities relating to tax risks. For further information see Note 9.

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NOTe 3 ACQUISITIONS AND DIVeSTMeNTS

ACQUISITIONSAcquisitions made during the year totalled SEK 493m, including assumed net debt. The acquisitions mainly relate to:

Company Operations Acquisition dateAcquisition price1),

SeKmGoodwill,

SeKm Acquired %Total holding after

acquisition %

Copamex Personal Care October 2010 363 83 100 100

Gällö Timber AB Forest Products June 2010 65 0 50 50

1) Acquisition price pertains to purchase price excluding net debt.

The acquisitions above are reported in the Board of Directors’ Report on page 11 under the section Acquisitions, investments and divestments. In addition to these acquisitions, a number of minor acquisitions were made in Italy, Sweden and the Philippines, totalling SEK 11m. All acquisitions were paid in cash. Acquisition costs of SEK 4m relating to acquisitions in 2010 are included in operating profit.

The fair value of acquired receivables amounts to SEK 23m, which concurs with the con-tractual gross amount for overdue receivables. Goodwill relates to acquisition of market shares, where an individual value for another asset could not be identified. No component of acquired goodwill in 2010 is expected to be deductible in income taxation. There are no plans to divest all or parts of any of the acquired operations.

effect on sales and earnings of acquisitions for the yearThe acquisition of Copamex’s baby diaper operations in Mexico and Central America increased SCA’s net sales by SEK 120m in 2010 and operating profit by SEK 12m. If the Copamex operations had been consolidated as of 1 January 2010, the acquired operations’ net sales would have amounted to approximately SEK 480m and operating profit would have been SEK 48m. The investment in Gällö Timber AB increased SCA’s net sales by SEK 260m in 2010 and the operating profit by SEK 7m. If the Gällö Timber operations had been consolidated as of 1 January 2010, the acquired operations’ net sales would have amounted to approximately SEK 500m and operating profit would have been SEK 17m.

Acquired operationsThe table below shows the fair value of acquired net assets recognised on the acquisition date, recognised goodwill and the effect on the Group’s cash flow statements of all acquisi-tions. No major changes in the acquisition balances are expected to occur in 2011.

Preliminary acquisition balance sheetSeKm 2010 2009 2008

Non-current assets 415 38 1,487

Operating assets 116 32 132

Cash and cash equivalents 3 1 1

Provisions and other non-current liabilities –112 – –123

Net debt excl. cash and cash equivalents –35 –6 –1

Operating liabilities –31 –24 –36

Fair value of net assets 356 41 1,460

Goodwill1) 83 37 297

Acquisition price 439 78 1,757

Acquisition price –439 –78 –1,757

Unpaid purchase price related to acquisition – 32 –

Settlement of liability for purchase price for acquisitions in earlier years –22 – –7

Cash and cash equivalents in acquired companies 3 1 1

Impact on consolidated cash and cash equivalents, Business Combinations (Consolidated cash flow statement) –458 –45 –1,763

Acquired net debt excl. cash and cash equivalents –35 –6 –1

Acquisition of operations incl. net debt assumed (Consolidated operating cash flow statement) –493 –51 –1,764

1) Specification of investment in goodwill;

SeKm 2010 2009 2008

Investment in goodwill related to acquisitions 83 42 352

Recovery of previously paid purchase consideration – –5 –55

Total 83 37 297

ADJUSTMeNT OF PReLIMINARY ACQUISITION BALANCe SHeeTS 2010In 2010, the following adjustments were made of preliminary acquisition balance sheets concerning the 2009 acquisition of Algodonera Aconcagua, Argentina, after final valuation of acquired assets and liabilities.

SeKm Algodonera Aconcagua, Argentina

Goodwill –36

Trademarks 24

Buildings, land, machinery and equipment 16

Deferred tax assets –4

Total assets 0

DIVeSTMeNTSIn April 2010, SCA divested its Asian packaging operations. The purchase price received was USD 200m. Sales in the Asian operations amounted to USD 250m in 2009 and there were approximately 4,200 employees at 15 plants in China, Singapore, Malaysia and Indo-nesia. In 2009, SCA divested its holding in the 50%-owned joint venture Godrej SCA Hygiene Ltd, India, and it divested the paper mill in Pratovecchio, Italy. In 2008, the corru-gated board operations in the UK and Ireland were divested.

SeKm 2010 2009 2008

Non-current assets 1,262 80 1,019

Operating assets 853 27 867

Cash and cash equivalents 135 1 19

Net debt excl. cash and cash equivalents –92 –4 –11

Provisions –19 – –219

Operating liabilities –742 –24 –521

Non-controlling interests –58 – –6

Gain/loss on sale 1 –8 0

Compensation received after divestment expenses 1,340 72 1,148

Less cash and cash equivalents in sold companies –135 –1 –19

Impact on consolidated cash and cash equivalents, Business Combinations (Consolidated cash flow statement) 1,205 71 1,129

Divested net debt excl. cash and cash equivalents 92 4 11

Divestment of operations incl. net debt transferred (Consolidated operating cash flow statement) 1,297 75 1,140

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NOTe 4 OPeRATING eXPeNSeS BY TYPe OF COSTS

Operating expenses by functionSeKm 2010 2009 2008

Cost of goods sold –84,524 –84,744 –88,190

Sales and administration expenses –15,121 –16,500 –13,730

Items affecting comparability –931 –1,458 –

Total –100,576 –102,702 –101,920

See also page 100 for description of costs.

Operating expenses by type of costSeKm Note 2010 2009 2008

Other income 2,336 2,553 2,707

Change in net value of biological assets 12 629 668 720

Change in inventory of finished products and products in progress1) 19 63 –1,431 147

Raw materials and consumables 19 –37,250 –33,621 –40,138

Personnel expenses1) 6 –21,137 –22,737 –20,498

Other operating expenses1) –38,775 –40,706 –38,647

Depreciation 7 –6,324 –6,828 –6,199

Impairments1) 7 –118 –600 –12

Total –100,576 –102,702 –101,920

1) Including items affecting comparability.

Items affecting comparabilityItems affecting comparability in 2010 and 2009 relate to restructuring costs of SEK 246m (1,458) in the Packaging business, SEK 622m (–) in the Personal Care business and SEK 63m (–) in the Forest Products business. These costs totalled SEK 931m (1,458), of which SEK 787m (741) relates to restructuring costs being paid, SEK 118m (600) relates to impair-ment of non-current assets and SEK 26m (117) pertains to impairment of working capital, mainly inventory. Restructuring costs comprise personnel costs in the amount of SEK 603m (499) and other operating expenses of SEK 184m (242).

Other incomeOther income includes income from activities or sales of goods and services outside SCA’s normal core business. The income can be of a recurring or occasional nature. During 2010, sales of goods and services outside SCA’s normal business operations amounted to SEK 1,629m, revenue from SCA’s transport business amounted to SEK 545m, rental income amounted to SEK 43m and royalties amounted to SEK 22m. Income of a more occasional nature amounted to SEK 97m of which SEK 95m pertains to gains from the sale of non-cur-rent assets.

Other operating expenses

SeKm 2010 2009 2008

Transport expenses –8,989 –9,450 –9,027

Energy expenses1) –6,289 –6,866 –7,329

Purchased finished goods for onward sale –4,797 –4,626 –3,348

Marketing costs –4,052 –4,227 –3,375

Repairs and maintenance –3,211 –3,361 –3,306

IT, telephony and lease of premises –2,925 –3,052 –3,104

Other operating expenses, production –3,431 –3,476 –3,128

Other operating expenses, distribution, sales and administration –3,558 –3,581 –4,304

Other –1,523 –2,067 –1,726

Total –38,775 –40,706 –38,647

1) After deduction for energy income in the amount of SEK 903m (1,059; 983).

Other disclosuresExchange rate differences totalling SEK 232m (–23; 4) are included in operating profit. Government grants received reduced operating expenses by SEK 52m (63, 60). Costs for research and development amounted to SEK 713m (738; 612).

Operating leasesFuture payment obligations in the Group of minimum leasing fees for non-cancellable operating leases are distributed as follows:SeKm 2010 2009 2008

Within 1 year 1,054 994 1,001

Between 2 and 5 years 2,490 2,402 2,220

Later than 5 years 1,389 1,528 1,534

Total 4,933 4,924 4,755

Cost for the year related to operating leasing of assets amounted to SEK 1,104m (1,007; 874). Leasing objects comprise a large number of items, including energy plants, ware-houses, offices, other buildings, machinery and equipment, IT equipment, office fixtures and various transport vehicles. The assessment for a number of the objects is that, in reality, it is possible to terminate contracts early.

Finance leasesFuture payment obligations in the Group of minimum leasing fees for finance leases are dis-tributed as follows:SeKm 2010 2009 2008

Within 1 year 920 121 168

Between 2 and 5 years 112 1,213 1,415

Later than 5 years 54 48 70

Total 1,086 1,382 1,653

Future financial expenses for financial leasing –40 –97 –93

Present value of liabilities relating to finance leases 1,046 1,285 1,560

Total payments for finance leases during the year amounted to SEK 112m (170; 182). During the year, SEK 19m (44; 72) was recognised as an interest expense and SEK 93m (126; 110) as amortisation of debt. Depreciation of finance lease assets during the year amounted to SEK 89m (115; 105). The carrying amount of finance lease assets at year-end amounted to SEK 152m (179; 209) relating to buildings/land and SEK 873m (1,084; 1,257) relating to machinery.

For information about significant leasing contracts, refer to Note 32 Contingent liabilities. In addition to this, there is a leasing contract for a paper machine in Laakirchen that was terminated in advance in January 2011.

Auditing expensesRemuneration to auditors can be specified as follows:SeKm 2010 2009 2008

PwC

Audit assignments 71 73 67

Auditing activities other than the audit assignment 2 – –

Tax consultancy services 8 – –

Other assignments 10 15 19

Total PwC 91 88 86

Other auditors

Audit assignments 2 3 4

Tax consultancy services 2 – –

Other assignments 3 2 2

Total other auditors 7 5 6

Total 98 93 92

Auditing activities other than the audit assignment and tax consultancy services were included in other assignments in 2009 and 2008, but are recognised separately as of 2010.

Beginning in 2010, other assignments are mainly consultations in conjunction with acqui-sitions and divestments.

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NOTe 5 SeGMeNT RePORTING

Primary segments – operating segments

SeKm Personal Care Tissue Packaging Publication

papers

Pulp, timber and solid-wood

productsOther

operations eliminations Total Group

2010 financial year

Revenues

External sales 24,729 39,672 28,443 8,179 7,316 803 – 109,142

Internal sales 298 198 1,190 347 1,281 1,052 –4,366 0

Total revenues 25,027 39,870 29,633 8,526 8,597 1,855 –4,366 109,142

Result

Segment result 2,922 3,041 1,577 –88 2,543 –387 – 9,608

Items affecting comparability –622 – –246 –63 – – – –931

Operating profit/loss 2,300 3,041 1,331 –151 2,543 –387 – 8,677

Interest income 64

Interest expenses –1,180

Tax expense for the year –1,969

Net profit for the year 5,592

Other disclosures

Assets 16,873 47,102 30,420 7,031 36,507 8,131 –9,592 136,472

Holdings in associates – 595 370 14 27 16 – 1,022

Unallocated assets 5,484

Total assets 16,873 47,697 30,790 7,045 36,534 8,147 –9,592 142,978

Investments –1,884 –2,558 –1,322 –312 –749 –45 – –6,870

Depreciation –1,189 –2,265 –1,399 –797 –577 –97 – –6,324

Impairment losses

Income and expenses, in addition to depreciation, not matched by payments –28 23 –40 –4 –601 –73 – –723

2009 financial year

Revenues

External sales 25,513 41,220 27,825 9,526 6,171 602 – 110,857

Internal sales 203 205 534 233 1,053 868 –3,096 0

Total 25,716 41,425 28,359 9,759 7,224 1,470 –3,096 110,857

Result

Segment result 3,235 3,946 413 1,253 1,250 –449 – 9,648

Items affecting comparability – – –1,458 – – – – –1,458

Operating profit/loss 3,235 3,946 –1,045 1,253 1,250 –449 – 8,190

Interest income 158

Interest expenses –1,802

Tax expense for the year –1,716

Profit for the year 4,830

Other disclosures

Assets 16,856 49,363 34,183 8,243 34,747 5,082 –6,588 141,886

Holdings in associates 8 552 373 18 19 9 – 979

Unallocated assets 6,994

Total 16,864 49,915 34,556 8,261 34,766 5,091 –6,588 149,859

Investments –2,092 –2,658 –1,479 –728 –468 –27 – –7,452

Depreciation –1,178 –2,496 –1,713 –809 –562 –70 – –6,828

Impairment losses

Income and expenses, in addition to depreciation, not matched by payments –13 5 –48 –4 –643 –6 – –709

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NOTe 5 CONT.

SeKm Personal Care Tissue Packaging Publication

papers

Pulp, timber and solid-wood

productsOther

operations eliminations Total Group

2008 financial year

Revenues

External sales 23,033 38,379 32,766 9,005 6,130 1,136 – 110,449

Internal sales 298 1 675 10 1,565 332 –2,881 0

Total 23,331 38,380 33,441 9,015 7,695 1,468 –2,881 110,449

Result

Segment result 2,912 2,375 1,493 402 1,805 –433 – 8,554

Items affecting comparability – – – – – – – –

Operating profit/loss 2,912 2,375 1,493 402 1,805 –433 – 8,554

Interest income 246

Interest expenses –2,563

Tax expense for the year –639

Profit for the year 5,598

Other disclosures

Assets 16,899 53,424 37,703 8,759 34,855 5,975 –8,536 149,079

Holdings in associates 7 534 392 19 25 6 – 983

Unallocated assets 8,906

Total 16,906 53,958 38,095 8,778 34,880 5,981 –8,536 158,968

Investments –1,688 –4,894 –2,453 –731 –737 67 – –10,436

Depreciation –1,006 –2,194 –1,642 –764 –530 –63 – –6,199

Impairment losses –12 – – – – – – –12

Income and expenses, in addition to depreciation, not matched by payments 12 –109 –71 – –613 –90 – –871

1) Items affecting comparability

2010 2009 2008

ex- penses

Impair- ments

ex- penses

Impair- ments

ex- penses

Impair- ments

Personal Care –527 –95 – – – –

Tissue – – – – – –

Packaging –223 –23 –858 –600 – –

Publication papers –63 – – – – –

Pulp, timber and solid-wood products – – – – – –

Other – – – – – –

Total –813 –118 –858 –600 – –

Net –931 –1,458 –

Business Segments: The Group is organised in five main product groups: personal care, tissue, packaging, publication papers, and pulp, timber and solid-wood products. These product groups are the primary segments. Tissue includes toilet paper, kitchen paper and paper handkerchiefs sold to the retail trade, as well as, toilet paper, hand-drying products, napkins and products for cleaning for industrial and office applications. These products are sold to corporate customers in the industrial sector, offices, hotels, restaurants and catering, healthcare and other institutions. Personal Care products comprise incontinence care prod-ucts, baby diapers and feminine care products. Packaging comprises corrugated board as well as protective and specialty packaging. This business segment also includes container-board, which is mainly delivered internally and contributes to the Group’s raw material inte-gration. Publication papers include newsprint and magazine paper. The pulp, timber and solid-wood products business segment also contributes to the Group’s raw material integra-tion, since the Group’s pulp and timber are mainly delivered internally. In addition, the Group’s pulp is mainly produced from timber from the Group’s own forests, which also to a large extent supply the sawmills.

Assets and liabilities: The assets included in each business segment comprise all operat-ing assets used in the business segment, primarily trade receivables, inventories and non-current assets after deduction for provisions. Most of the assets are directly attributable to each business segment. In addition, some assets that are common to two or more business segments are allocated among the business segments.

Intra-Group deliveries: Revenues, expenses and results for the various business seg-ments were affected by intra-Group deliveries. Internal prices are market-based. Intra-Group deliveries are eliminated when preparing the consolidated financial statements.

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NOTe 6 PeRSONNeL AND BOARD COSTS

Personnel costsSeKm 2010 2009 2008

Salaries and remuneration 15,654 16,596 15,142

of which Group management 107 104 63

of which Board 5 5 5

Pension costs 915 1,278 975

of which defined-benefit pension plans 162 518 189

of which defined-contribution pension plans 753 760 786

Other social security costs 3,382 3,596 3,098

Other personnel costs 1,186 1,267 1,283

Total1) 21,137 22,737 20,498

1) Total personnel costs include SEK 603m (499; -) attributable to costs for implemented efficiency- enhancement measures.

Average number of employees2010 2009 2008

Average number of employees 45,341 49,531 51,999

of whom women 26% 27% 29%

Number of countries 61 61 60

Women comprised 14% (18) of the total number of Board members and senior executives.

Breakdown of employees by age groups, %2010 21–30 yrs 31–40 yrs 41–50 yrs 51–60 yrs

18 28 30 19

Less than 2% (2) of the employees are under the age of 20, and less than 3% (2) are over age 60. During 2010, SCA invested approximately SEK 147m (246; 153) or nearly SEK 3,200 (5,000; 3,400) per employee in skills-enhancement activities.

The added value per employee in 2010 amounted to SEK 633,000 (600,000; 534,000). The proportion of university graduates amounts to about 16% (15; 13).

In 2010, the Asian packaging operations were divested with approximately 4,200 employees, and in addition to this number, 4,269 (5,768) people left SCA while 4,262 (3,832) joined the Group. These figures include both voluntary retirement and the effects of rationali-sation activities and retirements. In addition, a significant portion relates to summer jobs for students and seasonal work.

Absence due to illness in Swedish companies% 2010 2009 2008

Total absence due to illness of normal working hours 3 3 4

Men 3 3 4

Women 4 4 5

Of which, continuous absence due to illness of 60 days or more 44 45 45

Proportion of absence due to illness by age group, %2010 –29 yrs 30–49 yrs 50– yrs

2 3 4

FeeS TO BOARD MeMBeRS IN THe PAReNT COMPANY DURING THe YeAR Members of the Board elected by the AGM who are not employees in the company received the following remuneration in 2010 in accordance with the AGM resolution.

SeK Board feeAudit

Committee feeRemuneration Committee fee Total

Sverker Martin-Löf (Chairman) 1,350,000 100,000 75,000 1,525,000

Pär Boman 450,000 450,000

Rolf Börjesson 450,000 75,000 525,000

Sören Gyll 450,000 100,000 550,000

Jan Johansson 0 0

Leif Johansson 450,000 75,000 525,000

Anders Nyrén 450,000 125,000 575,000

Barbara Milian Thoralfsson 450,000 450,000

Total 4,050,000 325,000 225,000 4,600,000

ReMUNeRATION OF SeNIOR eXeCUTIVeSSenior executives refer to the President, who is also the CEO, the Executive Vice President, Business Group Presidents and the Central Staff Managers. For the composition of this group, see page 43.

AGM guidelines for remuneration of senior executivesThe 2010 Annual General Meeting adopted the following guidelines for remuneration of sen-ior executives:

“Remuneration of the CEO and other senior managers will be a fixed amount, possible variable remuneration, additional benefits and pension. Other senior managers include the Executive Vice President, Business Group Managers or equivalent, and the Central Staff Managers. The total remuneration is to correspond to market practice and be competitive in the senior manager’s field of profession. Fixed and variable remuneration are to be linked to the manager’s responsibility and authority. For the CEO, as well as for other senior executives, the variable remuneration is to be limited and linked to the fixed remuneration. The variable remuneration is to be based on the outcome of predetermined objectives and, as far as pos-sible, be linked to the increase of value of the SCA share, from which the shareholders bene-fit. Programmes for variable remuneration should be formulated so that the Board, if excep-tional circumstances prevail, has the possibility to limit, or refrain from, payment of variable remuneration if such an action is considered reasonable and in compliance with the compa-ny’s responsibility to shareholders, employees and other stakeholders.

In the event of termination of employment, the notice period should normally be two years should termination be initiated by the company, and one year, when initiated by the senior executive. Severance pay should not exist.

Pension benefits are to be either defined-benefit or defined-contribution plans, or a com-bination of both, and entitle the senior executive to pension from the age of 60, at the earliest. To earn the pension benefits, the period of employment must be long-term, at present 20 years. When resigning before the age providing entitlement to pension, the senior executive will receive a paid-up pension policy from the age of 60. Variable remuneration is not pen-sionable income. Matters of remuneration of the senior management are to be dealt with by the Remuneration Committee and, as regards the President, be resolved by the Board of Directors.”

Company’s application of guidelinesThe company applied the guidelines approved by the AGM in the following manner:

Fixed salaryThe fixed salary shall be in proportion to the individual’s position and the authority and responsibilities this entails. It is set individually at a level that, combined with other remunera-tion, is assessed as a market rate and competitive in the labour market in which the execu-tive works.

Variable remunerationVariable remuneration of the CEO, Executive Vice President and Business Group Presidents and equivalents is maximised to a total of 85% of the fixed salary. For one Business Group President, stationed in the US, the maximum outcome is 95%, while the corresponding limit for other senior executives is 75%.

The programme for variable remuneration is divided into a short and long-term portion.The short-term portion (Short-term Incentive, or STI) for the CEO, Executive Vice Presi-

dent and Business Group Presidents and equivalents may amount to a maximum of 50% of fixed salary. For one Business Group President, stationed in the US, the maximum outcome is 60%, while the corresponding limit for other senior executives is 40%. The STI goals set for the Business Group Presidents are mainly based on operating cash flow, cost control, operating profit and growth for each business group, while the goal for the CEO and others reporting directly to him is based primarily on the Group’s profit before tax and cash flow before dividends. Furthermore, a non-financial goal also applies accounting for 10–20% of the variable remuneration.

The long-term portion (Long-Term Incentive, or LTI) may amount to a maximum of 35% of the fixed salary, providing that the executive invests half of the net outcome in the company’s share, and a maximum of 25% if such investment is not made. The established LTI goal is based on the performance of the company’s B share, measured as the TSR (Total Share-holder Return) index, compared with a weighted index of competitors’ shares performance (TSR) over a three-year period. The structure of the LTI was approved by the Board in 2003.

Outcome, variable remunerationFor the CEO, Executive Vice President and Central Staff Managers, STI resulted in 35–45% of fixed salary for 2010. STI resulted in variable remuneration corresponding to 25–50% of fixed salary for the Business Group Presidents. The LTI target was also achieved for 2008–2010, resulting in maximum outcome for the CEO and other senior executives.

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NOTe 6 CONT.

Other benefitsOther benefits pertain in some cases to a company car, housing and school fees.

PensionFor the CEO, who is entitled to retire at the age of 60, the pension agreement provides a retirement pension (excluding national pension benefits and previously earned paid-up poli-cies) between the age of 60 and 65 of approximately 40% of final salary (excluding variable remuneration) and thereafter of approximately 20% of final salary (excluding variable remu-neration) for life. Upon termination of employment prior to retirement age, a paid-up policy is received for pension payments from age 60. In addition, beneficiaries’ pension amounts to approximately 50% of retirement pension in the case of death before the age of 65 and thereafter to 30% of the retirement pension (including previously earned paid-up policies).

Most of the other senior executives in the Group have a combination of defined-benefit and defined-contribution pension plans that entitle the executives, on reaching the age of 60, to receive a retirement pension (including national pension benefits) of up to 45% of the average salary (excluding variable remuneration) for three years prior to retirement age. For full pension, the individual must have been employed for at least 20 years calculated from 40 years of age. Upon termination of employment prior to reaching retirement age, a paid-up policy is received for pension payments from age 60, on condition that the executive, after reaching the age of 40, has been employed in the Group for at least three years. In addition, beneficiaries’ pension amounts to about 50% of retirement pension. In addition to the defined-benefit pension, a pension is paid based on premiums paid by the company. The premiums paid for each year of service amount to 10% of the executive’s base salary and are invested in a fund or insurance chosen by the executive.

Some senior executives in the Group have a pension plan, which is closed to new entrants, that is a defined-benefit pension plan, which grants the executive the right at the age of 65 to receive a pension (including national pension benefits) at up to 70% of the salary (excluding variable salary). However, they are entitled to retire at 60 with 70% of the final sal-ary at retirement (excluding variable remuneration), between 60 and 65 and subsequently with 50% of the salary at retirement (excluding variable remuneration). Normally, full pension requires the executive to have been employed in the Group for 20 years. Upon termination of employment prior to reaching retirement age, a paid-up policy is received for pension pay-ments from age 65 or 60, on condition that the executive, after reaching the age of 40, has been employed in the Group for at least three years. In addition, beneficiaries’ pension amounts to about 50% of retirement pension.

Three senior executives have a defined-contribution pension plan (in addition to national pension benefits) into which the company pays 30–40% of the executives’ basic salary, which is invested in funds or traditional insurance.

Notice period and severance payThe agreement with the CEO stipulates a period of notice of termination of two years if such notice is given by the company. The CEO has a corresponding right with a period of termina-tion of one year. If notice is given by the company, the CEO is not obligated to serve during the notice period. The agreement does not contain any stipulations with regard to severance pay. Between the company and other senior executives, a period of notice of termination of one to two years normally applies, if such notice is given by the company. The executive has a corresponding right with a period of notice of termination of six months to one year. The executive is normally expected to be available to the company during the notice period. The agreements have no stipulations with regard to severance pay.

Preparation and decision process for remunerationDuring the year, the Remuneration Committee submitted recommendations to the Board regarding the principles for remuneration of senior executives. The recommendations encompassed the ratio between fixed and variable remuneration and the size of any salary increases. In addition, the Remuneration Committee proposed criteria for assessing variable remuneration and pension terms. The Board discussed the Remuneration Committee’s pro-posal and decided on the basis of the Committee’s recommendations. The remuneration of senior executives for the 2010 financial year was based on the Remuneration Committee’s recommendation, and with regard to the CEO, decided by the Board. The executives con-cerned did not participate in remuneration matters pertaining to themselves. When it was deemed appropriate, the work of the Remuneration Committee was carried out with the support of external expertise. For information about the composition of the Remuneration Committee, see page 38.

The Board’s proposal for new guidelinesThe Board has decided to propose to the 2011 Annual General Meeting the unchanged guidelines for determining salaries and other remuneration for senior executives. For 2011, the Company will apply the guidelines in a largely unchanged manner with regard to variable remuneration. However, the LTI will be capped at 50% of the fixed salary. In return, the senior executive must invest half of the variable LTI compensation, after tax withholdings, in SCA shares. The shares may then not be sold before the end of the third calendar year after entry into the relevant LTI programme.

With the salary situation prevailing in 2011 and an unchanged number of senior execu-tives, the maximum outcome of variable remuneration could entail a cost for the Group, excluding social security costs, of approximately SEK 56m.

Remuneration and other benefits during the year

SeK Fixed salary Variable

remuneration Other benefits Other remuneration Total Pension costs

CEO Jan Johansson 8,500,000 6,863,750 134,819 – 15,498,569 5,058,073

Other senior executives (14 people) 47,849,389 34,348,158 9,001,638 – 91,199,185 22,151,201

Total 56,349,389 41,211,908 9,136,457 – 106,697,754 27,209,274

Comments to the table:• Variableremunerationcoversthe2010financialyearbutispaidin2011.• Pensioncostspertaintothecoststhataffectedprofitfortheyear,excludingspecialpayrolltax.

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Group by country

Net sales Average number of employees Salaries

2010 2009 of whom women, %

of whom women, %

2010 2009

SeKm % SeKm % 2010 2009 SeKm SeKm

Sweden 8,001 7 7,051 6 6,552 26 6,614 26 2,703 2,746

eU excl. Sweden

Germany 15,066 14 15,661 14 6,139 18 6,272 18 2,823 3,133

United Kingdom 9,455 9 10,015 9 2,570 21 2,715 22 895 1,054

France 8,446 8 9,045 8 2,663 27 2,771 26 1,275 1,008

Italy 7,597 7 7,334 7 2,226 18 2,334 16 771 882

Netherlands 5,005 5 5,526 5 1,944 15 2,116 14 1,024 1,173

Spain 4,896 4 5,198 5 986 26 949 28 332 354

Denmark 2,851 3 3,239 3 937 28 1,152 26 498 673

Belgium 2,490 2 2,701 3 838 25 877 24 414 467

Austria 2,328 2 2,250 2 1,489 15 1,528 14 668 807

Finland 1,511 1 1,502 1 333 37 356 37 127 145

Greece 1,246 1 1,267 1 419 24 430 24 114 119

Hungary 1,232 1 1,135 1 759 37 828 37 87 90

Poland 1,189 1 1,226 1 840 27 803 27 107 97

Czech Republic 1,029 1 999 1 652 45 778 45 78 96

Portugal 498 0 617 1 37 51 37 59 13 15

Romania 352 0 395 0 122 36 103 39 15 8

Ireland 327 0 410 0 21 43 25 40 8 11

Lithuania 304 0 256 0 182 33 182 35 25 25

Slovakia 278 0 308 0 791 33 821 33 84 92

Rest of EU 661 1 658 1 90 33 90 36 11 17

Total eU excl. Sweden 66,761 61 69,742 63 24,038 23 25,167 22 9,369 10,266

Rest of europe

Russia 2,664 2 2,348 2 1,491 44 1,129 46 219 206

Norway 1,908 2 1,800 2 243 44 244 41 120 127

Switzerland 1,752 2 1,690 1 238 36 235 33 130 122

Ukraine 273 0 247 0 61 46 56 38 9 11

Other 685 1 582 1 214 8 190 6 27 28

Total, Rest of europe 7,282 7 6,667 6 2,247 40 1,854 39 505 494

Rest of world

US 9,018 8 9,222 8 2,591 26 2,672 42 1,460 1,502

Australia 3,241 3 2,992 3 726 25 764 26 461 411

Mexico 2,638 2 2,489 2 2,780 21 2,520 19 278 267

Colombia 1,504 1 1,320 1 1,300 29 1,249 30 18 7

Japan 1,267 1 1,393 2 57 72 56 70 30 30

China 1,203 1 2,012 2 957 41 4,344 40 118 200

Canada 1,130 1 1,093 1 286 39 253 31 138 128

New Zealand 945 1 888 1 573 20 622 23 246 229

Malaysia 913 1 965 1 1,240 52 1,339 46 128 116

Chile 463 1 429 0 239 8 281 0 24 31

Ecuador 368 0 364 0 480 33 429 32 25 23

Morocco 311 0 309 0 – – – – – –

Costa Rica 305 0 295 0 87 34 168 29 20 24

Indonesia 296 0 406 0 18 33 74 28 – 2

South Africa 259 0 258 0 98 50 61 44 15 12

Singapore 211 0 267 0 68 49 202 40 21 30

Other, Asia 445 1 564 1 – – – – – –

Other 2,581 4 2,131 3 1,004 43 862 43 95 78

Total, Rest of world 27,098 25 27,397 25 12,504 31 15,896 34 3,077 3,090

Group 109,142 100 110,857 100 45,341 26 49,531 27 15,654 16,596

Board of Directors’ Report | SCA Annual Report 2010 73

Notes – Group | Financial statements

Page 78: SCA Annual Report 2010 En

NOTe 7 DePReCIATION AND IMPAIRMeNTof property, plant and equipment, and intangible assets

SeKm 2010 2009 2008

Depreciation

Buildings 836 891 811

Land 109 114 93

Machinery and equipment 5,054 5,475 4,979

Sub-total 5,999 6,480 5,883

Patents, trademarks and similar rights 292 306 274

Capitalised development costs 33 42 42

Sub-total 325 348 316

Total 6,324 6,828 6,199

Impairment losses

Buildings 94 163 2

Land 13 7 0

Machinery and equipment 11 406 10

Sub-total 118 576 12

Capitalised development costs 0 24 0

Sub-total 0 24 0

Total 118 600 12

Total

Buildings 930 1,054 813

Land 122 121 93

Machinery and equipment 5,065 5,881 4,989

Sub-total 6,117 7,056 5,895

Patents, trademarks and similar rights 292 306 274

Capitalised development costs 33 66 42

Sub-total 325 372 316

Total depreciation and impairment 6,442 7,428 6,211

Depreciation is based on the costs and estimated useful lives of the assets outlined in the accounting principle section on page 64.

NOTe 8 FINANCIAL INCOMe AND eXPeNSeS

SeKm 2010 2009 2008

Results from shares and participations in other companies

Dividend 32 53 64

Capital gains, impairment losses –2 0 17

Interest income and similar profit/loss items

Interest income, investments 27 89 165

Other financial income 7 16 –

Total financial income 64 158 246

Interest expenses and similar profit/loss items

Interest expenses, borrowing –1,237 –1,644 –2,233

Interest expenses, derivatives 78 –169 –248

Fair value hedges, unrealised 8 32 –35

Other financial expenses –29 –21 –47

Total financial expenses –1,180 –1,802 –2,563

Total –1,116 –1,644 –2,317

Other financial income and expenses include exchange gains of SEK 7m (gain 16; loss 23).If interest rate levels had been 1 percentage point higher/lower, with unchanged fixed-

interest terms and volumes in the net debt, interest expenses for the year would have been SEK 158m (243; 290) higher/lower. Sensitivity analysis calculations have been performed on the risk to which SCA was exposed at 31 December 2010 using assumptions on market movements that are regarded as reasonably possible in one year’s time.

SCA Annual Report 2010 | Board of Directors’ report74

Financial statements | Notes – Group

Page 79: SCA Annual Report 2010 En

Note 9 INcome taxes

tax expense seKm 2010 2009 2008

Current tax expense 1,038 1,532 1,262

Deferred tax expense 931 184 –623

tax expense 1,969 1,716 639

Tax expense amounted to 26.0% (26.2; 10.2) of the Group’s profit before tax. The difference between reported tax expense and expected tax expense is explained below. The expected tax expense is calculated according to the current group structure and current profit levels in each country.

2010 2009 2008

seKm % seKm % seKm %

Tax expense 1,969 26.0 1,716 26.2 639 10.2

Expected tax expense 1,908 25.2 1,801 27.5 1,724 27.7

Difference 61 0.8 –85 –1.3 –1,085 –17.5

the difference is explained by:

Permanent effects 1)

Effects attributable to internal banking operations – – – – –669 –10.8

Effects of other subsidiary financing –135 –1.7 –175 –2.7 –171 –2.7

Other permanent effects2) 159 2.1 236 3.6 190 3.0

Taxes related to prior periods3) 3 0.0 –114 –1.7 –100 –1.6

Changes in unrecognised tax assets4) 34 0.4 –8 –0.1 131 2.1

Changed tax rates5) – – –24 –0.4 –466 –7.5

total 61 0.8 –85 –1.3 –1,085 –17.5

1) Permanent effects are attributable to permanent differences between the accounting and fiscal result.2) The effects of the year include tax expenses of SEK 34m related to profit-taking within the Group. 2009

includes SEK 15m and 2008 includes SEK 46m in tax expenses for corresponding profit-taking. 3) During the year, the reversal of a provision for tax risks in a previous year decreased the tax expense by

SEK -33m. The amount for 2009 mainly pertains to the right to future tax credits related to foreign with-holding taxes. In 2008, SCA recognised tax income amounting to SEK 33m due to a favourable ruling in the European Court of Justice.

4) In 2009, deferred tax assets in Mexico were impaired by SEK 21m. In 2008, deferred tax assets in Mexico were impaired by SEK 65m.

5) The changed tax rates in 2009 relates to the revaluation of deferred taxes due to a corporate tax rate increase in Mexico. The change in tax rates in 2008 was attributable to the revaluation of deferred taxes due to the reduction of the corporate tax rate in Sweden.

cURReNt taxcurrent tax expense (+), tax income (–)seKm 2010 2009 2008

Income tax for the year 1,142 1,471 1,332

Adjustments for prior years –104 61 –70

current tax expense 1,038 1,532 1,262

current tax liability (+), tax income (–)The change during the year to the current tax liability is explained below:seKm 2010 2009 2008

Balance, 1 Jan. 53 –483 27

Current tax expense 1,038 1,532 1,262

Paid tax –1,255 –1,003 –1,702

Other changes –5 –4 –20

Exchange differences 10 11 –50

Balance, 31 Dec. –159 53 –483

Other changes relate to acquisitions and divestments in the amount of SEK –5m (–4; –20). The closing current tax liability comprises tax assets of SEK 547m (332; 682) and tax liabili-ties of SEK 388m (385; 199).

DeFeRReD taxDeferred tax expense (+), tax income (–)seKm 2010 2009 2008

Changes in temporary differences 849 417 –190

Adjustments for prior years 108 –175 –30

Other changes –26 –58 –403

total 931 184 –623

Other changes include the effects of changed tax rates, which reduced the deferred tax expense by SEK 0m (–24; –466), revaluation of deferred tax assets, which increased deferred tax expense by SEK 0m (5; 63) and capitalisation of tax assets related to the right to future tax deductions of SEK –26m (–39; 0).

Deferred tax liability (+), tax receivable (–)The change during the year to the deferred tax liability is explained below:

seKmopening balance

Deferred tax expense

other changes

exchange differences

closing balance

Intangible assets 221 75 –3 45 338

Land and buildings 7,870 60 0 –128 7,802

Machinery and equipment 5,198 159 –9 –379 4,969

Financial assets 33 –114 86 16 21

Current assets –39 –55 79 6 –9

Provisions for pensions –608 159 109 27 –313

Other provisions –128 133 14 12 31

Liabilities –437 58 69 0 –310

Tax credits and tax loss carry forwards –3,468 397 –21 148 –2,944

Other –14 59 –7 8 46

total 8,628 931 317 –245 9,631

Other changes include deferred tax recognised directly in equity of according to IAS 19 of SEK 160m, IAS 39 of SEK 135m, effects of acquisitions and divestments SEK –39m and release of provisions for tax risks of SEK 61m. The closing deferred tax liability comprises tax assets of SEK 1,169m (1,156; 1,073) and tax liabilities of SEK 10,800m (9,784; 9,849).

Loss caRRYFoRWaRDsLoss carry forwards for which no deferred tax assets were recognised amounted to SEK 1,898m (1,892; 1,404) at 31 December 2010. Of these, SEK 143m have an indefinite life. The remainder expire as follows:Year seKm

2011 138

2012 102

2013 97

2014 75

2015 and later 1,343

total 1,755

During 2010, unrecognised loss carry forwards amounting to SEK 33m expired and SEK 613m was either utilised or capitalised. The tax value of unrecognised loss carry forwards amounted to SEK 551m.

otheRSCA reports no deferred tax relating to temporary differences attributable to investments in subsidiaries, associated companies and joint ventures. Any future effects (tax deducted at source and other deferred tax on profit-taking within the Group) is reported when SCA can no longer control reversal of such differences or when, for other reasons, it is no longer improbable that reversal can take place in the foreseeable future.

Board of Directors’ Report | SCA Annual Report 2010 75

Notes – Group | Financial statements

Page 80: SCA Annual Report 2010 En

NOTe 10 INTANGIBLe FIXeD ASSeTS

Goodwill TrademarksLicences, patents and similar rights

Capitalised development costs

SeKm 2010 2009 2008 2010 2009 2008 2010 2009 2008 2010 2009 2008

Accumulated costs 17,688 19,147 19,374 2,316 2,104 1,921 3,009 3,190 3,447 497 562 550

Accumulated depreciation – – – –124 –129 –125 –2,106 –2,005 –1,818 –312 –316 –291

Accumulated impairment – – – –200 –201 –202 –9 –15 –18 –21 –28 –5

Residual value according to plan 17,688 19,147 19,374 1,992 1,774 1,594 894 1,170 1,611 164 218 254

Value at 1 January 19,147 19,374 18,161 1,774 1,594 1,613 1,170 1,611 1,531 218 254 238

Investments 0 – – 0 – – 142 104 207 5 31 30

Sales and disposals 0 – – 0 – – –3 –1 – –8 0 –

Business combinations 83 37 297 203 – – 0 0 1 0 – –

Company divestments –75 –10 – 0 – – –107 – – –9 – –

Reclassifications1) –36 30 31 24 209 2 17 –206 2 2 4 8

Depreciation for the year – – – –10 –11 –10 –282 –295 –264 –33 –42 –42

Impairment for the year – – – 0 – – 0 0 – 0 –24 –

Translation differences –1,431 –284 885 1 –18 –11 –43 –43 134 –11 –5 20

Value at 31 December 17,688 19,147 19,374 1,992 1,774 1,594 894 1,170 1,611 164 218 254

1) In 2010, intangible assets were changed due to reclassification to property, plant and equipment in the amount of SEK 7m.

IMPAIRMeNT TeSTINGGoodwill is tested for impairment every year. Goodwill is distributed among operating seg-ments as follows:

Goodwill by operating segment

SeKm

Average WACC 2010,

% 2010 2009 2008

Personal Care 6.0 2,546 2,557 2,534

Tissue 6.3 8,232 8,746 8,749

Packaging 5.3 6,112 6,970 7,250

Publication papers 5.4 173 188 203

Pulp, timber and solid-wood products 5.4 29 30 30

Other operations 5.4 596 656 608

Total 17,688 19,147 19,374

The recoverable amount for each cash-generating unit is determined based on a calculation of value in use. These calculations are based on the strategic plans adopted by Group man-agement for the next ten years. Assumptions in strategic plans are based on current market prices and costs with an addition for real price reductions and cost inflation as well as assumed productivity development. Volume assumptions follow the Group’s target of an average annual growth of 3 to 4%, depending on business segment and geographic mar-ket. Effects of expansion investments are excluded when goodwill is tested for impairment. Sustained growth of 2% has been used in the calculation. Anticipated future cash flows, according to strategic plans, form the basis of the calculation. Cash flows for the period beyond ten years are calculated by an operating surplus multiple being applied to estimated sustained cash flow. In a present value calculation of anticipated future cash flows, the cur-rent weighted cost of capital (WACC) decided for each area within the Group at that time is applied. Discounted cash flows are compared with the carrying amount of capital employed per cash-generating unit. Testing for impairment is carried out in the fourth quarter and test-ing for 2010 showed that there was no impairment need. The sensitivity analysis shows that reasonable changes to key parameters do not give rise to any impairment.

In addition to goodwill, there are acquired trademarks in the Group that are judged to have an indefinite useful life. The useful life is judged as indefinite when it relates to well-established trademarks within their respective markets which the Group intends to retain and further develop. The trademarks identified and measured relate to the 2010 acquisition of Personal Care in South America, the 2007 acquisition of the European tissue operations and the 2004 acquisitions in Mexico, Australia and Malaysia. The cost of the trademarks was established at the time of acquisition according to the so-called relief from royalty method. The need for impairment is tested every year. Testing is carried out during the fourth quarter and is performed for each trademark or group of trademarks. An evaluation is made of the royalty rate determined at the time of acquisition as well as assessed future sales develop-ment over ten years. A multiple is used for time beyond ten years. This is discounted with the current weighted cost of capital (WACC) for each market. Testing for 2010 showed no impairment need for trademarks. At year-end, the value of SCA’s trademarks with an indefi-nite useful life amounted to SEK 1,977m (1,745; 1,553).

eMISSION ALLOWANCeSThe SCA Group participates in the European system for emission allowances. SCA receives a permit from each country in which operations requiring a permit are conducted, to emit a specific volume of carbon dioxide during a calendar year. At year-end 2010, surplus emis-sion allowances not required to cover the provision for emissions were adjusted downward by SEK 1m to the current market price on the balance sheet date. In conjunction with this, the deferred income was also reversed by a corresponding amount so that the net cost for the revaluation is zero. Settlement with each government regarding 2010 emissions will take place in April 2011.

SeKm 2010 2009 2008

Accumulated costs 222 253 349

Accumulated revaluation of surplus –2 –11 –22

Residual value according to plan 220 242 327

Value at 1 January 242 327 73

Emission allowances received 221 307 363

Acquisitions – – 15

Sales –3 –72 –89

Reclassifications 0 0 21

Settlement with the government –212 –307 –79

Revaluation of surplus –2 –1 –7

Translation differences –26 –12 30

Value at 31 December 220 242 327

SCA Annual Report 2010 | Board of Directors’ report76

Financial statements | Notes – Group

Page 81: SCA Annual Report 2010 En

NOTe 11 PROPeRTY, PLANT AND eQUIPMeNT

Buildings Land Machinery and equipment Construction in progress

SeKm 2010 2009 2008 2010 2009 2008 2010 2009 2008 2010 2009 2008

Accumulated costs 22,290 24,257 23,764 6,945 7,118 7,181 85,057 90,183 90,768 4,866 4,217 5,709

Accumulated depreciation –9,578 –9,825 –9,445 –1,360 –1,230 –1,132 –50,201 –50,821 –48,970 – – –

Accumulated impairment –496 –423 –402 –52 –46 –81 –1,304 –2,026 –3,692 – – –

Residual value according to plan 12,216 14,009 13,917 5,533 5,842 5,968 33,552 37,336 38,106 4,866 4,217 5,709

Value at 1 January 14,009 13,917 12,721 5,842 5,968 5,580 37,336 38,106 34,659 4,217 5,709 3,487

Investments 318 794 364 139 125 142 2,146 3,315 3,669 3,651 2,763 4,203

Sales and disposals –59 –26 –22 –41 –15 –25 –91 –117 –35 –29 –23 –14

Business combinations 10 2 429 5 0 250 142 13 510 1 0 7

Company divestments –443 0 –234 0 0 –229 –452 –67 –557 –18 –2 –5

Reclassifications1) 535 888 278 146 34 –10 2,087 3,089 1,919 –2,766 –4,054 –2,242

Depreciation for the year –836 –891 –811 –109 –114 –93 –5,054 –5,475 –4,979 0 0 0

Impairment for the year –94 –163 –2 –13 –7 0 –11 –406 –10 0 0 0

Reversed impairment 0 0 0 0 0 0 0 0 0 0 0 0

Translation differences –1,224 –512 1,194 –436 –149 353 –2,551 –1,122 2,930 –190 –176 273

Value at 31 December 12,216 14,009 13,917 5,533 5,842 5,968 33,552 37,336 38,106 4,866 4,217 5,709

1) In 2010, property, plant and equipment was reduced due to reclassification to intangible assets of SEK 7m and increased due to reclassifications to deferred tax of SEK 9m.

During the year, SEK 8m (35; –) pertaining to interest during the construction period was capitalised in Buildings, SEK 1m (30; 18) was capitalised in Machinery and equipment and SEK 35m (66; 45) was capitalised in Construction in progress, at an average interest rate of 4% (11; 29). The high interest rate in 2008 was attributable to the high interest level in Russia, where most of the capitalised interest is recognised.

Government grants reduced investments for the year in buildings by SEK –m (5; –) and machinery and equipment by SEK 13m (30; 16).

TAX ASSeSSMeNT VALUeSTax assessment values relate to assets in Sweden.

SeKm 2010 2009 2008

Buildings 1,983 1,979 1,942

Land 19,289 19,308 19,278

Total 21,272 21,287 21,220

Carrying amount of buildings with tax assessment values in accordance with the above was SEK 1,450m (1,587; 1,436).

The tax assessment value for land includes forestland, which is divided up and recog-nised as biological assets, and land assets (see Note 12).

Carrying amount of biological assets and land was SEK 26,069m (25,397; 24,711) and SEK 1,878m (1,825; 1, 804), respectively.

Board of Directors’ Report | SCA Annual Report 2010 77

Notes – Group | Financial statements

Page 82: SCA Annual Report 2010 En

Note 12 BIoLoGICAL ASSetS

SCA’s forest assets are divided up and reported as biological assets, that is, standing forest, and land assets. Standing forest is recognised at fair value and amounted at 31 December 2010 to SEK 26,069m (25,397; 24,711). The total value of SCA’s forest assets was SEK 26,983m (26,309; 25,622). The difference of SEK 914m (912; 911) comprises forestland reported under non-current assets Land.

Standing timberSeKm 2010 2009 2008

Value at 1 January 25,397 24,711 23,905

Purchases 47 20 96

Sales –4 –2 –10

Change due to growth 1,692 1,601 1,718

Change due to felling –1,063 –933 –998

Value at 31 December 26,069 25,397 24,711

Deferred tax related to standing timber 6,856 6,679 6,499

In the income statement, changes due to growth and felling are reported as a net value, SEK 629m (668; 720).

The annual valuation of standing timber was carried out during the fourth quarter of the year. The same valuation method used in 2008 and 2009 was applied in 2010. The valuation felling plan was based on forest tax assessments performed in 2006–2007. No change was made in the WACC in the 2010 valuation, which amounted to 6.25%, and the valuation in the fourth quarter did not result in any adjustment to the planned change in fair value of forest assets recognised on an ongoing basis during the year.

SCA’s forest holdings comprise approximately 2.6 million hectares of forestland primarily in northern Sweden, of which approximately 2.0 million hectares is productive forestland. The forest portfolio amounts to 209 million cubic metres of forest (m3fo) and is divided into pine 43%, spruce 39%, deciduous 13% and contorta 5%. Average growth amounts to approximately 3.9 m3fo per hectare and year. Felling in 2010 amounted to approximately 4.7 million m3sub. Approximately 50% of the holdings comprise forest less than 40 years old, while about 60% of timber volume is in forests that are more than 80 years old.

2010 2009 2008

Value/hectare productive forestland, SEK 13,047 12,711 12,232

Value timber supplies SEK/ m3fo 125 123 126

Sensitivity analysis

Change assumptionChange in value before tax, SeKm

WACC + / – 0.25% + / – 1,557

Wood price, real 1) + / – 0.50% per year 2011–2020 + / – 2,018

Felling, real cost + / – 0.50% per year 2011–2020 + / – 339

Volume (felling and thinning) + / – 150,000 m3sub 2012–2035 + / – 666

1) Compared with price assumptions made in the valuation model.

Value trend, standing timber 2010

Forest area timber volume Forest portfolio

Proportion younger than 40 yrs, 50% Proportion older than 80 yrs, 60%

Spruce, 39%

Deciduous, 13%

Contorta, 5%

Pine, 43%

SEKm

0

25,000

26,000

27,000

28,000

Value

at 31

Dec

embe

r

Chang

e due

to fe

lling

Chang

e due

to gr

owth

Sales

Purcha

ses

Value

at 1

Janu

ary

SCA Annual Report 2010 | Board of Directors’ Report78

Financial statements | Notes – Group

Page 83: SCA Annual Report 2010 En

Note 13 HoLDINGS IN ASSoCIAteS

SeKm 2010 2009 2008

Value at 1 January 979 983 950

Investments 12 5 121

Divestments – – –12

Net increase in associates for the year 1) 96 17 11

Reclassifications to joint ventures or subsidiaries –4 – –134

Other reclassifications – – 1

Impairment for the year – –1 –

Translation differences –62 –25 46

Value at 31 December 1,021 979 983

1) Net increase for the year includes the Group’s share of associates’ profit after tax and any non-controlling interests as well as adjustment for dividends received during the year.

Investments in 2010 refer mainly to Scala Packaging in Italy.Reclassifications in 2010 refer to Herrera Holdings, Inc. in the Philippines, which is now a

wholly owned subsidiary.The Group’s holdings in major subsidiaries, joint ventures and associates are specified in

Note 16.The Group’s total receivables from associates at 31 December 2010 amounted to SEK

35m (64; 76), of which SEK 2m (3; 4) is interest-bearing. The Group’s total liability to associ-ates at 31 December 2010 amounted to SEK 7m (5; 5) of which SEK 0m (0; 0) was interest-bearing.

Note 14 SHAReS AND PARtICIPAtIoNS

SeKm 2010 2009 2008

Value at 1 January 80 73 68

Investments 0 – 6

Increase through acquisition of subsidiaries – 14 –

Divestments –1 –4 –6

Other reclassifications – –2 –2

Translation differences –2 –1 7

Value at 31 December 77 80 73

Shares and participations pertain to holdings in other companies that are not classified as subsidiaries, joint ventures or associates and assets which are also not classified as availa-ble-for-sale financial assets since the holding is of an operating nature. Carrying amounts concur with fair value.

The Group’s holdings in major subsidiaries, joint ventures and associates are specified in Note 16.

Note 15 JoINt VeNtUReS

Joint ventures, that is, companies that SCA owns together with other parties and in which the parties by agreement exercise joint control, are consolidated according to the propor-tional method.

Most of the joint ventures operate within the hygiene area, mainly in Latin America. One joint venture produces newsprint and has its operations in the UK. SCA’s share of income statement and balance sheet items as well as the average number of employees in joint ven-tures that are part of the SCA Group, are set out below:

SeKm 2010 2009 2008

Income statement

Net sales 5,856 5,430 5,112

Cost of goods sold –4,713 –4,220 –4,182

Gross profit 1,143 1,210 930

Sales, general and administration –940 –869 –767

operating profit 203 341 163

Financial items –39 –82 –78

Profit before tax 164 259 85

Tax –59 –84 –54

Net profit for the year 105 175 31

Profit attributable to:

Owners of the Parent 105 175 31

SeKm 2010 2009 2008

Balance sheet

Non-current assets 2,968 3,004 2,807

Current assets 1,967 1,893 2,077

total assets 4,935 4,897 4,884

Equity 2,824 2,841 2,653

Non-current liabilities 626 551 484

Current liabilities 1,485 1,505 1,747

total equity and liabilities 4,935 4,897 4,884

2010 2009 2008

Average number of employees 3,231 2,936 2,788

of whom women, % 27 26 25

SeKm 2010 2009 2008

Capital employed 3,033 3,353 3,319

Net debt, incl. pension liability 498 513 665

Personnel costsSeKm 2010 2009 2008

Boards, Presidents and Vice Presidents 25 16 18

of which variable salary 0 0 0

Other employees 260 328 302

Salaries and remuneration 285 344 320

Pension costs 12 11 7

Other social security costs 89 71 62

total 386 426 389

Social security costs 101 82 69

of which, pension costs 12 11 7

Average number of employees by country

2010 2009 2008

of whom women,

%

of whom women,

%

of whom women,

%

Argentina 121 63 27 52 – –

Chile 239 8 241 8 244 8

Colombia 1,300 29 1,249 30 1,224 29

Ecuador 480 33 429 32 406 34

United Kingdom 172 13 170 13 184 15

Tunisia 338 13 328 11 313 11

Turkey 207 6 187 6 164 6

Other countries 374 60 305 55 253 36

total 3,231 26 2,936 27 2,788 25

The Group’s holdings in major subsidiaries, joint ventures and associates are specified in Note 16.

Board of Directors’ Report | SCA Annual Report 2010 79

Notes – Group | Financial statements

Page 84: SCA Annual Report 2010 En

Note 16 LISt oF MAJoR SUBSIDIARIeS, JoINt VeNtUReS AND ASSoCIAteS

Group holdings of shares and participations in major companies at 31 December 2010.The selection of subsidiaries and joint ventures includes companies with sales in excess of SEK 500m in 2010.

Company name

Corporate registration number Domicile

Share of capital %

Subsidiaries

SCA Hygiene Products GmbH, Mannheim HRB3248 Mannheim 100

SCA Hygiene Products Nederland B.V. 30135724 Zeist 100

SCA Tissue North America LLC 58-2494137 Delaware 100

SCA Graphic Sundsvall AB 556093-6733 Sundsvall 100

SCA Skog AB 556048-2852 Sundsvall 100

SCA Hygiene Products UK Limited 3226403 Dunstable 100

SCA Hygiene Products AB 556007-2356 Gothenburg 100

SCA Hygiene Products (SASU) 509395109 Roissy 100

SCA Hygiene Products S.L., Spain B28451383 Tarragona 100

SCA Timber AB 556047-8512 Sundsvall 100

SCA Hygiene Products S.p.a 03318780966 Lucca 100

SCA Hygiene Products GmbH, Wiesbaden HRB5301 Wiesbaden 100

SCA Graphic Laakirchen AG FN171841 h Laakirchen 100

SCA Packaging Italia SpA 6640640154 Milan 100

SCA Packaging Stiftung & Co KG HR A13495 Nürnberg 100

SCA Consumidor Mexico, SA de CV SCM931101 3S5 Mexico City 100

SCA HP Supply (SASU) 509599619 Roissy 100

SCA Hygiene Products GmbH, Vienna FN49537z Vienna 100

SCA Hygiene Australasia Pty Ltd 62004191324 Box Hill 100

SCA Hygiene Products SA-NV, Belgium 405 681 516 Stembert 100

OOO SCA Hygiene Products Russia 4704031845 Moscow 100

SCA Personal Care, Inc 23-3036384 Delaware 100

SCA Packaging Benelux BV 8046917 Eerbeek 100

Uni-Charm Mölnlycke B.V. 02330631 Hoogezand 40

SCA Hygiene Products Inc 421987 Ontario 100

SCA Packaging Denmark A/S DK21153702 Risskov 100

SCA Packaging Containerboard Deutschland GmbH HRB7360 Aschaffenburg 100

SCA Packaging Munksund AB 556237-4859 Piteå 100

SCA Packaging Sweden AB 556036-8507 Värnamo 100

SCA Packaging Ltd 53913 Darlington 100

SCA Packaging Obbola AB 556147-1003 Umeå 100

SCA Hygiene Products GmbH Neuss HRB 14343 Neuss 100

SCA Hygiene Products A/S, Norway 915620019 Oslo 100

SCA Hygiene Products Sloviakia s.r.o 36590941 Gemerskâ Hôrka 100

SCA Hygiene Australasia Limited 1470756 Auckland 100

SCA Recycling UK Ltd 214967 Aylesford 100

SCA Emballage France SAS B352398796 Nanterre 100

SCA Hygiene Products Sp.z.o.o. KRS 86815 Olawa 100

SCA Recycling Deutschland GmbH HR B 12280 Raubling 100

SCA Hygiene Products AG 020.3.917.992-8 Zug 99

SCA Packaging Nicollet SAS B766500011 Neuilly sur Seine 100

SCA Hygiene Malaysia Sdn Bhd 320704-U Kuala Lumpur 100

Aylesford Newsprint Holdings Ltd 2816412 Aylesford 100

SCA Packaging Belgium NV RPR 0436-442-095 Gent 100

Sancella Pty Ltd 55005442375 Box Hill 100

SCA Hygiene Products A/S, Denmark DK20638613 Allerød 100

SCA Hygiene Marketing (M) Sdn Bhd 313228-T Kuala Lumpur 100

OY SCA Hygiene Products AB FI01650275 Helsinki 100

SCA Hygiene Products Kft 01-09-71 6945 Budapest 100

SCA Hygiene Products Manchester Ltd 4119442 Dunstable 100

SCA Packaging FULDA GmbH HR B 93 Fulda 100

SCA Packaging Hungary Kft 01-09-868330 Budapest 100

SCA Hygiene Products AE EL094041786 Nea Ionia (Athens) 100

Bunzl & Biach Ges.m.b.H FN79555v Vienna 100

SCA Timber Supply Ltd 2541468 Stoke-on-Trent 100

SCA Packaging Ceska Republica S.R.O 44222882 Jílové u Dêcˆína 100

SCA Packaging Finland Oy 8615544 Helsinki 100

SCA Annual Report 2010 | Board of Directors’ Report80

Financial statements | Notes – Group

Page 85: SCA Annual Report 2010 En

Note 17 NoN-CURReNt FINANCIAL ASSetS

SeKm 2010 2009 2008

Available-for-sale financial assets 1,366 1,042 714

Derivatives 750 714 860

Loan receivables, associates 2 2 4

Loan receivables, other 80 74 78

Value at 31 December 2,198 1,832 1,656

Available-for-sale financial assets

Value at 1 January 1,042 714 1,296

Investments 325 3 5

Divestments –324 – –2

Remeasurement for the year taken to equity, net 336 330 –598

Translation differences –13 –5 13

Value at 31 December 1,366 1,042 714

In addition to shares in AB Industrivärden, pension assets attributable to some pension obli-gations are classified as available-for-sale financial assets. These obligations are not included in the normal pension calculations, as set out in Note 26, Provisions for pensions.

Available-for-sale financial assets, fair valueSeKm 2010 2009 2008

Shares – AB Industrivärden 1,262 929 603

Pension assets not included in IAS19 calculation 96 105 103

Other 8 8 8

total 1,366 1,042 714

The holding in AB Industrivärden amounted to 10,525,655 shares (10,525,655; 10,525,655). No impairment provisions were made for available-for-sale financial assets in 2010, 2009 or 2008.

If the stock market had risen/fallen by 15%, all other variables being unchanged, and the Group’s shareholdings changed in accordance with the stock market, equity would have increased/decreased by SEK 204m (155; 106). Sensitivity analysis calculations have been performed on the risk to which SCA was exposed at 31 December 2010 using assumptions on market movements that are regarded as reasonably possible in one year’s time.

Company nameCorporate registration number Domicile

Number of shares

Share of capital %

Carrying amount at year-end, SeKm

Joint venture companies

Aylesford Newsprint Holdings Ltd 2816412 Aylesford 50

Productos Familia S.A., Colombia 890.900.161-9 Medellin 50

Associates

Vinda Hong Kong 92035 Cayman Islands 169,531,897 18 556

Lantero Carton SA A-81907701 Madrid 100 25 272

GAE Smith 1075198 Leicester 44,300 50 89

Papyrus Altpapierservice Ges.m.b.H. FN124517p Vienna 1 32 20

Cartografica Galeotti SPA 1333330464 Lucca 16,667 33 16

IL Recycling AB 556056-2687 Stockholm 28,000 33 16

Uni4 Marketing AB 556594-6984 Stockholm 1,800 36 12

Belovo Paper Mill AD BG822104867 Belovo 1 28 11

Scala Packaging srl 11034581006 Rome 1 48 8

Södra Latvia SIA 40003490902 Skulte 7,500 50 7

Austria Papier Recycling GmbH FN113626y Vienna 1 33 4

Industrikraft i Sverige AB 556761-5371 Stockholm 20,000 20 4

Södra Esti 10329729 Harjumaa 200 50 3

Immobiliare Galeotti 01955990467 Lucca 33 33 1

Other 2

Value at 31 December 1,021

Board of Directors’ Report | SCA Annual Report 2010 81

Notes – Group | Financial statements

Page 86: SCA Annual Report 2010 En

Note 18 DeRIVAtIVeS

BALANCe SHeetSCA uses financial derivatives to manage currency, interest rate and energy price risks.

The table below shows the derivatives that impacted the Group’s balance sheet on 31 December 2010. For more information relating to derivatives in the balance sheet, see Note 31 Financial instruments by category.

outstanding derivatives

of which

SeKm total Currency 1) Interest rate energy Share

2010

Nominal 43,098 25,051 16,053 1,994 –

Asset 1,462 532 676 254 –

Liability 553 314 173 66 –

2009

Nominal 43,562 26,794 15,204 1,564 –

Asset 1,011 286 694 31 –

Liability 788 400 125 263 –

2008

Nominal 43,784 22,236 20,256 1,250 42

Asset 1,572 659 878 35 –

Liability 1,214 624 206 353 31

1) Nominal SEK 99,758m (98,688; 44,396) is outstanding before the right of set-off.

INCoMe StAteMeNtDuring the year, transaction exposure hedges had an impact on operating profit for the year of SEK 427m (98; negative: 116). At year-end, the net market value amounted to SEK 278m (117; negative: 77). Currency hedges increased the cost of non-current assets by SEK 26m (reduced: 10; reduced: 5). At year-end, the net market value amounted to negative SEK 40m (negative: 10; positive: 42).

In 2010, energy derivatives had a negative impact on operating profit for the year of SEK 98m (negative: 302; positive: 22). Energy derivatives have an outstanding market value of SEK 188m (negative: 232; negative: 318) at year-end.

Derivatives positively impacted net interest items in the amount of SEK 86m (negative: 137; negative: 283). The net market value on outstanding interest rate derivatives amounted to SEK 503m (569; 672) at year-end. For further information relating to net financial items, see Note 8 Financial income and expenses.

Sensitivity analysisSensitivity analysis calculations have been performed on the financial instruments’ risk to which SCA was exposed at 31 December 2010 using assumptions on market movements that are regarded as reasonably possible in one year’s time.

If the Swedish krona had unilaterally weakened/strengthened by 5% against all curren-cies, outstanding financial hedges as well as trade payables and trade receivables would have increased/decreased profit for the year before tax by SEK 95m (226; 53).

Currency hedges relating to the cost of non-current assets, if the Swedish krona had uni-laterally weakened/strengthened by 5%, would have increased/decreased equity by SEK 10m (0; 2).

If energy prices had increased/decreased by 20%, outstanding financial hedges relating to natural gas and electricity, all other things being equal, would have decreased/increased energy costs for the year by SEK 235m (110; 98). In addition to the earnings impact, equity would have increased/decreased by SEK 144m (157; 62). The total energy cost for the Group, however, would have been affected differently, if the price risk related to supply contracts was taken into account.

oUtStANDING DeRIVAtIVeS WItH HeDGe ACCoUNtINGThe table below presents outstanding derivatives with hedge accounting at 31 December 2010.

Derivatives with hedge accounting 1)

of which

Cash flow Net invest-ments in

foreign entities 2)

Fair value of interest rate risk in financing

transaction exposure

totalexport and

import flowsInvest-ments Interest energy

2010

Asset 2,390 210 19 32 219 1,266 644

Liability 290 11 34 – 59 56 130

Hedge reserve after tax 275 147 –14 24 118

2009

Asset 886 109 7 – 24 52 694

Liability 703 25 17 – 255 281 125

Hedge reserve after tax –89 61 11 – –161

2008

Asset 1,668 56 43 – 10 747 812

Liability 587 34 1 – 325 33 194

Hedge reserve after tax –180 16 31 – –227

1) Outstanding derivatives with hedge accounting are included in the table Outstanding derivatives.2) Pertains to derivatives before right of set-off.

Hedging reserve in equityCurrency derivatives relating to hedging of transaction exposure mostly mature during the first half year of 2011. All derivatives in the hedging reserve at year-end 2010 will be realised before the end of 2011. With unchanged exchange rates, profit after tax will be affected positively by SEK 147m (61; 16). Currency derivatives relating to hedging of the cost of non-current assets have a maturity spread until the end of July 2012. With unchanged exchange rates, the cost of non-current assets will increase by SEK 14m (decline 11: decline 31) after tax.

Derivatives pertaining to hedging of interest expenses mature in December 2015. With unchanged interest rates, net financial items would be impacted positively by SEK 24m after tax.

The derivatives intended to hedge energy costs in the Group mostly mature during 2011 and 2012. A small part will be realised during 2013. With unchanged prices, the Group’s profit after tax will be affected positively by SEK 118m (negative: 161; negative: 227).

Hedging of net investmentsIn order to achieve the desired hedging level for foreign capital employed, SCA has hedged the net investments in a number of selected legal entities. In total, hedging positions affected equity in 2010 by SEK 4,613m (1,391; 763). This result is largely due to hedges of net invest-ments in EUR. The total market value of outstanding hedging transactions at year-end was SEK 1,210m (negative: 229; positive: 714). In total at year-end, SCA hedged net invest-ments outside Sweden amounting to SEK 32,684m. SCA’s total foreign net investments at year-end amounted to SEK 76,596m.

Hedging of net investments in foreign operations, SeKmCurrency 2010 2009 2008

EUR 30,517 30,700 –4,374

GBP 1,448 2,023 1,755

USD 1,325 1,015 705

CAD 204 – –

RUB 181 444 –37

NZD 181 179 156

MXN –147 206 588

AUD –1,179 –1,095 –912

Other 154 153 40

total 32,684 33,625 –2,079

SCA Annual Report 2010 | Board of Directors’ Report82

Financial statements | Notes – Group

Page 87: SCA Annual Report 2010 En

Note 19 INVeNtoRIeS

SeKm 2010 2009 2008

Raw materials and consumables 3,045 2,971 3,709

Spare parts and supplies 1,809 1,912 1,939

Products in progress 1,289 812 1,053

Finished products 5,303 5,095 6,268

Felling rights 1,047 650 964

Advance payments to suppliers 18 19 25

total 12,511 11,459 13,958

Note 20 tRADe ReCeIVABLeS

SeKm 2010 2009 2008

Trade receivables, gross 16,069 16,642 18,814

Provision to reserves for doubtful receivables –453 –539 –450

Carrying amount of trade receivables 15,616 16,103 18,364

Analysis of credit risk exposure in trade receivablesSeKm 2010 2009 2008

Trade receivables neither overdue nor impaired 13,875 13,851 15,446

Trade receivables overdue but not impaired

< 30 days 1,367 1,665 2,041

30–90 days 265 408 524

> 90 days 109 179 353

trade receivables overdue but not impaired 1,741 2,252 2,918

Carrying amount of trade receivables 15,616 16,103 18,364

In total, the Group has collateral mainly in the form of credit insurance taken out amounting to SEK 1,603m (1,755; 2,263). Of this amount, SEK 213m (220; 409) relates to the category Trade receivables overdue but not impaired.

Provision to reserves for doubtful receivablesSeKm 2010 2009 2008

Value at 1 January –539 –450 –304

Provision for possible loan losses –67 –261 –200

Confirmed losses 47 73 54

Increase due to acquisitions – – –1

Decrease due to divestments 15 4 1

Decrease due to reversal of reserve for possible loan losses 42 74 33

Translation differences 49 21 –33

Value at 31 December –453 –539 –450

Total expense for the year for doubtful receivables amounted to SEK 43m (186; 166).

Note 21 otHeR CURReNt ReCeIVABLeS

SeKm 2010 2009 2008

Receivables from associates 32 61 72

Accrued financial income 2 18 18

Derivatives 539 217 248

Prepaid expenses and accrued income 641 681 658

Other current receivables 2,002 1,734 2,121

total 3,216 2,711 3,117

Note 22 CURReNt FINANCIAL ASSetS, CASH AND CASH eQUIVALeNtS

Current financial assetsSeKm 2010 2009 2008

Financial assets 12 4 1

Derivatives 108 66 456

Loan receivables, other 100 124 185

total 220 194 642

Cash and cash equivalentsSeKm 2010 2009 2008

Cash and bank balances 1,291 1,570 1,462

Short-term investments < 3 months 575 3,578 4,276

total 1,866 5,148 5,738

Note 23 NoN-CURReNt ASSetS AND LIABILItIeS HeLD FoR SALe

SeKm 2010 2009 2008

Land 50 57 60

Machinery and equipment 43 48 42

Non-current assets held for sale 93 105 102

With regard to the reclassification, the assets were measured at the lower of the carrying amount and fair value less selling expenses, which did not entail any impairment losses in any of the years above.

Board of Directors’ Report | SCA Annual Report 2010 83

Notes – Group | Financial statements

Page 88: SCA Annual Report 2010 En

NOTE 24 EquiTy

SEKm 2008 Share capital

Other capital provided Reserves1)

Retained earnings

Equity attributable to SCA’s

shareholders

Non- controlling

interests Total equity

Value at 1 January 2,350 6,830 842 53,568 63,590 689 64,279

Profit for the year recognised in the income statement 5,578 5,578 20 5,598

Other comprehensive income

Actuarial gains and losses relating to defined-benefit pension plans 2) –3,335 –3,335 13 –3,322

Available-for-sale financial assets:

Result from measurement at fair value recognised in equity –599 –599 –599

Cash flow hedges:

Result from remeasurement of derivatives recognised in equity –312 –312 –312

Transferred to income statement for the period 58 58 58

Transferred to cost of hedged investments –5 –5 –5

Translation differences in foreign operations 2,757 2,757 128 2,885

Result from hedging of net investments in foreign operations 763 763 763

Tax on items recognised directly in/transferred from equity 4) 76 940 1,016 –3 1,013

Other comprehensive income, net after tax 2,738 –2,395 343 138 481

Total comprehensive income 2,738 3,183 5,921 158 6,079

Change in Group composition –6 –6

Sale of treasury shares 28 28 28

Dividend, SEK 4.40 per share 3) –3,089 –3,089 –39 –3,128

Value at 31 December 2008 2,350 6,830 3,580 53,690 66,450 802 67,252

2009

Profit for the year recognised in the income statement 4,765 4,765 65 4,830

Other comprehensive income

Actuarial gains and losses relating to defined-benefit pension plans 2) –911 –911 –38 –949

Available-for-sale financial assets:

Result from measurement at fair value recognised in equity 331 331 331

Cash flow hedges:

Result from remeasurement of derivatives recognised in equity –202 –202 –202

Transferred to income statement for the period 319 319 319

Transferred to cost of hedged investments –10 –10 –10

Translation differences in foreign operations –2,701 –2,701 –49 –2,750

Result from hedging of net investments in foreign operations 1,391 1,391 1,391

Tax on items recognised directly in/transferred from equity 4) –26 208 182 10 192

Other comprehensive income, net after tax –898 –703 –1,601 –77 –1,678

Total comprehensive income –898 4,062 3,164 –12 3,152

Dividend, SEK 3.50 per share 3) –2,458 –2,458 –40 –2,498

Value at 31 December 2009 2,350 6,830 2,682 55,294 67,156 750 67,906

2010

Profit for the year recognised in the income statement 5,552 5,552 40 5,592

Other comprehensive income

Actuarial gains and losses relating to defined-benefit pension plans 2) 528 528 –5 523

Available-for-sale financial assets:

Result from measurement at fair value recognised in equity 328 328 328

Transferred to income statement at sale 8 8 8

Cash flow hedges:

Result from remeasurement of derivatives recognised in equity 711 711 711

Transferred to income statement for the period –234 –234 –234

Transferred to cost of hedged investments 15 15 15

Translation differences in foreign operations –8,529 –8,529 –104 –8,633

Result from hedging of net investments in foreign operations 4,613 4,613 4,613

Tax on items recognised directly in/transferred from equity 4) –137 –156 –293 1 –292

Other comprehensive income, net after tax –3,225 372 –2,853 –108 –2,961

Total comprehensive income –3,225 5,924 2,699 –68 2,631

Change in Group composition –58 –58

Remeasurement effect upon acquisition of non-controlling interests –1 –1 –1

Dividend, SEK 3.70 per share 3) –2,599 –2,599 –58 –2,657

Value at 31 December 2010 2,350 6,830 –543 58,618 67,255 566 67,821

1) Revaluation reserve, Hedging reserve, Available-for-sale assets and Translation reserve are included in the Provisions line in the balance sheet, see specification on next page.2) Including payroll tax.3) Dividend SEK 3.70 (3.50; 4.40) per share pertains to Parent Company shareholders. For financial year 2010, the Board has decided to propose a divided of SEK 4.00 per share to the Annual General Meeting.4) For a specification of income tax attributable to components in other comprehensive income, refer to the next page.

For further information regarding equity, see Parent Company Note 45.

SCA Annual Report 2010 | Board of Directors’ Report84

Financial statements | Notes – Group

Page 89: SCA Annual Report 2010 En

Equity, specification of reserves

Revaluation reserve1) Hedging reserve2) Available-for-sale assets Translation reserve

SEKm 2010 2009 2008 2010 2009 2008 2010 2009 2008 2010 2009 2008

Value at 1 January 107 107 107 –89 –180 26 3 –327 270 2 661 3 980 439

Available-for-sale financial assets:

Result from measurement at fair value recognised in equity 328 331 –599

Transferred to income statement at sale 8

Cash flow hedges:

Result from remeasurement of derivatives recognised in equity 711 –202 –312

Transferred to income statement for the period –234 319 58

Transferred to cost of hedged investments 15 –10 –5

Translation differences in foreign operations 3) 8 9 –20 –1 –8,537 –2,710 2,778

Result from hedging of net investments in foreign operations 4,613 1,391 763

Tax on items recognised directly in/transferred from equity –136 –25 73 –1 –1 3

Other comprehensive income for the year, net after tax 0 0 0 364 91 –206 335 330 –597 –3,924 –1,319 3,541

Value at 31 December 107 107 107 275 –89 –180 338 3 –327 –1,263 2,661 3,980

1) Revaluation reserve includes effect on equity of step acquisitions.2) See also Note 18 for details of when profit or loss is expected to be recognised.3) Of which transfer to income statement of realised exchange gain relating to divested companies is included in the amount of SEK 87m (1; –).

Specification of income tax attributable to components in other comprehensive income

2010 2009 2008

SEKmBefore

taxTax

effectAfter

taxBefore

taxTax

effectAfter

taxBefore

taxTax

effectAfter

tax

Actuarial gains and losses relating to defined-benefit pension plans 523 –155 368 –949 218 –731 –3,322 937 –2,385

Available-for-sale financial assets 336 –1 335 331 –1 330 –599 3 –596

Cash flow hedges 492 –136 356 107 –25 82 –259 73 –186

Translation differences in foreign operations –8,633 – –8,633 –2,750 – –2,750 2,885 – 2,885

Result from hedging of net investments in foreign operations 4,613 – 4,613 1,391 – 1,391 763 – 763

Other comprehensive income –2,669 –292 –2,961 –1,870 192 –1,678 –532 1,013 481

At 31 December 2010, the debt/equity ratio amounted to 0.51, which is below SCA’s long-term target of 0.7. The debt/equity ratio deviates from this target at times and, over the past ten-year period, has varied between 0.44 and 0.70. Change in liabilities and equity is described on page 15, Financial position. SCA has a credit rating for long-term debt of Baa1 from Moody’s and BBB+ from Standard & Poor’s. SCA’s financial risk management is described in the Risk and risk management section on page 44. SCA’s dividend policy and capital structure are described on page 8.

Board of Directors’ Report | SCA Annual Report 2010 85

Notes – Group | Financial statements

Page 90: SCA Annual Report 2010 En

NOTE 25 FiNANCiAL LiABiLiTiES

At 31 December 2010, interest-bearing gross debt amounted to SEK 36,506m (44,104; 52,029). Distribution of financial liabilities is shown in the table below:

Financial liabilities

Carrying amount

SEKm 2010 2009 2008

Current financial liabilities

Amortisation within one year 399 646 569

Bond issues 5,966 2,000 –

Derivatives 204 307 378

Loans with maturities of less than one year 6,478 10,808 12,223

Total current financial liabilities 1) 13,047 13,761 13,170

Non-current financial liabilities

Bond issues 7,258 12,805 15,752

Derivatives 173 125 194

Other long-term loans with maturities > 1 year < 5 years 10,233 13,266 12,650

Other long-term loans with maturities > 5 years 5,795 4,147 10,263

Total non-current financial liabilities 23,459 30,343 38,859

Total 36,506 44,104 52,029

Fair value of financial liabilities 36,418 43,919 51,867

1) Fair value of short-term loans is estimated to be the same as the carrying amount.

The table below shows the maturity profile of the gross debt:

Maturity profile of the gross debtSEKm Total 2011 2012 2013 2014 2015 2016+

Commercial paper 4,199 4,199 – – – – –

Finance leases 1,046 9261) 62 30 14 9 5

Bond issues 13,224 5,966 – – 1,000 4,258 2,000

Utilisation of credit facilities – – – – – – –

Other loans 18,169 2,088 1,612 3,988 472 5,081 4,928

Total 2) 36,638 13,179 1,674 4,018 1,486 9,348 6,9331) Includes leasing contract for a paper machine in Laakirchen, SEK 886m, which was terminated in January 2011.2) Gross debt includes accrued interest in the amount of SEK 132m.

After additions for net pension provisions and deductions for cash and cash equivalents, interest-bearing receivables and capital investment shares, the net debt was SEK 34,406m (40,430; 47,002).

BorrowingFor issuing bonds in the European capital market, SCA has a Euro Medium Term Note (EMTN) programme with a programme size of EUR 3,000m (SEK 26,989m). As of 31 December 2010, a nominal EUR 1,801m (1,737; 1,066) was outstanding with a remaining maturity of 3.2 years (3.0; 2.8). SCA also utilises bond markets outside Europe and has issued a bond in the US for USD 450m (SEK 3,059m).

Bond issues

issued Maturity Carrying amount,

SEKmFair value,

SEKm

Notes EUR 663m 2011 5,966 5,966

Notes SEK 500m 2014 500 541

Notes SEK 500m 2014 542 541

Notes USD 450m 2015 3,375 3,351

Index Linked Interest Note SEK 300m 2015 327 313

Index Linked Interest Note SEK 500m 2015 545 522

Notes SEK 1,800m 2016 1,769 1,870

Floating Rate Note SEK 200m 2016 200 195

Total 13,224 13,299

SCA has a Swedish and a Belgian commercial paper programme that can be utilised for current borrowing.

Commercial paper programme1)

Programme size issued

SEKm

Commercial paper SEK 15,000m 4 181

Commercial paper EUR 400m 18

Total 4 199

1) Included in Loans with maturities of less than one year in the Financial liabilities table.

To limit the refinancing risk and maintain a liquidity reserve, SCA has syndicated bank facili-ties. In addition, SCA has contracted bilateral credit facilities with banks.

Credit facilities

Nominal MaturityTotal

SEKmutilised

SEKmunutilised

SEKm

Syndicated credit facilities EUR 35m 2011 315 – 315

EUR 1,105m 2012 9,941 – 9,941

EUR 1,000m 2014 8,996 – 8,996

Bilateral credit facilities SEK 641m 2011 641 – 641

SEK 3,000m 2011 3,000 – 3,000

SEK 2,500m 2013 2,500 – 2,500

SEK 3,000m 2015 3,000 – 3,000

Total 28,393 – 28,393

SCA Annual Report 2010 | Board of Directors’ Report86

Financial statements | Notes – Group

Page 91: SCA Annual Report 2010 En

NOTE 26 PROViSiONS FOR PENSiONS

SCA has both defined-contribution and defined-benefit pension plans. The most substantial defined-benefit plans are based on period of service and the remuneration received by employees on or close to retirement. The total pension costs for the defined-benefit plans are shown below.

SEKm 2010 2009 2008

Current service cost, excluding contributions by plan participants 393 338 392

Past service cost –9 99 –4

Interest expense 996 1,094 1,003

Expected return on plan assets –1,025 –863 –1,209

Pension costs before effects of curtailments and settlements 355 668 182

Curtailments –35 –18 –5

Settlements 0 1 0

Net pension costs after effects of curtailments and settlements 320 651 177

Of the pension costs for defined-benefit plans, SEK 158m (cost 133; income 12) is recog-nised as a financial expense, which is calculated on the net value of each plan at the begin-ning of the year.

Expected return on plan assets is determined on the basis of the assumption that the return on bonds will be the same as the interest on a 10-year government bond and that return on equities will reach the same interest with the addition of a risk premium. The inter-est decided for each country is weighted on the basis of how large a proportion comprises equities and bonds, respectively. At year-end, 60% (55; 51) of the total fair value of the plan assets was invested in equities, 38% (45; 49) comprised interest-bearing investments and 2% comprised property. The actual return on the plan assets in 2010 was SEK 2,533m (pos: 2,896; neg: 3,302).

Pension plans with balance sheet surpluses are recognised as an asset in the balance sheet, Surplus in funded pension plans. Other pension plans, which in balance sheet terms are not fully funded or unfunded, are recognised as Provisions for pensions. The value of all pension plans is distributed among surplus in funded pension plans and provisions for pen-sions, respectively, as shown below.

SEKm 2010 2009 2008

Provisions for pensions 3,108 3,567 3,443

Surplus in funded pension plans –1,057 –230 –843

Provision for pensions, net value 2,051 3,337 2,600

The summaries below specify the net value of the defined-benefit pension obligations.

SEKm 2010 2009 2008

Defined-benefit obligations 19,,953 20,332 17,108

Fair value of plan assets –17,889 –16,921 –14,419

Net value 2,064 3,411 2,689

Unrecognised past service costs –13 –74 –89

Provision for pensions, net value 2,051 3,337 2,600

Actuarial gains and losses for the year, reported in the Consolidated statement of compre-hensive income, are positive and amount to SEK 362m (neg. 1,026; neg: 2,923). Including translation differences, the accumulated gains and losses recognised in this manner thus amount to SEK 740m (1,210; 225).

In addition to the effect of changes in actuarial assumptions, such as change of discount rate, etc., actuarial gains and losses arose as a result of deviation from initial assumptions based on experience. Experience-based deviations include unexpectedly high or low figures for employee turnover, early retirement, mortality or salary increases, as well as deviation from expected rate of return on plan assets. The percentage effect of such adjustments when it applies to defined-benefit obligations amounts to about 2% (2; 0). With regard to plan assets, the deviation is 8% (pos: 12; neg: 31), which means that the return on the plan assets was higher than expected in 2010.

In addition to what is recognised in the net value as plan assets for existing obligations, there are assets in two Swedish foundations amounting to SEK 886m (640; 368), which can be used for possible future undertakings for early retirement for certain categories of employ-ees.

SCA has obligations for disability and family pensions for salaried employees in Sweden, secured through insurance with the insurance company Alecta. These benefits are reported as a defined-contribution plan, since the net after deduction for assets with the insurance provider is only a minor amount and since SCA did not have access to sufficient information to report this obligation as a defined-benefit plan. Premiums during the year for disability and family pension insurance with Alecta amounted to SEK 27m (25; 15).

The following table shows the net value of provisions for pensions divided between funded and unfunded pension plans. Funded plans include previously separately reported, partly funded plans. The funding level varies depending on the plan.

SEKm 2010 2009 2008

Funded plans

Defined-benefit obligations 18,057 18,091 15,084

Fair value of plan assets –17,889 –16,921 –14,419

Net value funded plans 168 1,170 665

Unrecognised past service costs –42 –57 –89

Provision for pensions, funded plans 126 1,113 576

unfunded plans

Defined-benefit obligations 1,896 2,241 2,024

Unrecognised past service costs 29 –17 0

Provision for pensions, unfunded plans 1,925 2,224 2,024

Provision for pensions, net 2,051 3,337 2,600

As in the preceding year, no financial instruments issued by the company are included in the fair value of plan assets at 31 December 2010.

SCA’s budgeted contributions for the defined-benefit obligations amount to approxi-mately SEK 350m for 2011.

Board of Directors’ Report | SCA Annual Report 2010 87

Notes – Group | Financial statements

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The following table shows the development of the net pension liability.

2010 2009 2008

SEKmDefined-benefit

obligationsPlan

assetsDefined-benefit

obligationsPlan

assetsDefined-benefit

obligationsPlan

assets

Opening balance 20,332 –16,921 17,108 –14,419 18,377 –18,448

Current service cost 451 – 431 – 486 –

Interest expense 996 – 1,094 – 1,003 –

Expected return on plan assets – –1,025 – –863 – –1,209

Past service cost –63 – 64 – –5 –

Acquisitions and disposals 3 – –4 – 74 –

Curtailments, settlements and transfers –19 – 28 –8 3 –

Contributions by plan participants – –58 – –68 – –94

Contributions by the employer – –988 – –872 – –739

Benefits paid –1,098 1,098 –1,112 1,114 –1,189 1,189

Actuarial gains and losses 1,146 –1,508 3,095 –2,069 –1,588 4,511

Translation effects –1,795 1,513 –372 264 –53 371

Closing balance 19,953 –17,889 20,332 –16,921 17,108 –14,419

of which:

Sweden 2,584 –2,710 2,817 –2,202 2,582 –1,634

United Kingdom 8,711 –8,345 8,553 –8,157 6,683 –6,827

Eurozone 7,148 –5,857 7,635 –5,668 5,160 –5,122

Principal actuarial assumptionsSweden united Kingdom Eurozone

2010

Discount rate 5.03 5.63 4.69

Expected salary increase rate 3.25 4.00 3.25

Expected inflation 2.00 3.00 2.00

Expected return on plan assets 6.37 6.54–6.63 4.19–6.10

2009

Discount rate 4.25 5.66 4.96

Expected salary increase rate 3.50 4.00 3.25

Expected inflation 2.00 2.80 2.00

Expected return on plan assets 5.93 7.20–7.41 4.45–5.73

2008

Discount rate 4.25 6.71 6.28

Expected salary increase rate 3.50 4.05 3.25

Expected inflation 2.00 2.80 2.00

Expected return on plan assets 6.17 6.70–7.54 4.18–6.28

The actuarial assumptions comprise the most significant assumptions applied when calcu-lating defined-benefit obligations at the balance sheet date. Expected return on plan assets is applied when calculating the subsequent year’s pension cost.

Actuarial gains and losses arise as a result of deviations from actuarial and experience-based assumptions, as well as a different return than expected. These gains and losses are recognised directly in equity in the period in which they arise. A change in the discount rate of 0.25 percentage points affects the total value of obligations by approximately SEK 748m. Taking into account that 60% of plan assets are invested in equities, a 10% upturn/decline in the total shareholding would lead to a change in value of approximately SEK 1,073m.

NOTE 26 CONT.

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NOTE 28 OTHER NON-CuRRENT LiABiLiTiES

SEKm 2010 2009 2008

Derivatives 7 75 92

Other non-current liabilities 231 110 122

Total 238 185 214

Of other non-current liabilities, SEK 136m (34; 46) falls due for payment later than within five years.

NOTE 29 OTHER CuRRENT LiABiLiTiES

Other current liabilitiesSEKm 2010 2009 2008

Liabilities to associates 7 5 5

Derivatives 169 280 550

Accrued expenses and prepaid income 7,298 8,071 7,592

Other operating liabilities 1,622 1,624 1,954

Total 9,096 9,980 10,101

Accrued expenses and prepaid income

2010

2009

2008

Accrued social security costs 397 535 449

Accrued vacation pay liability 813 939 892

Other liabilities to personnel 1,221 1,297 1,197

Accrued financial expenses 134 181 427

Bonus and discounts to customers 2,328 2,511 2,241

Other items 2,405 2,608 2,386

Total 7,298 8,071 7,592

As of 2010, bills receivable are included in trade payables instead of in other operating liabili-ties. The carrying amount of other operating liabilities for the comparative years 2009 and 2008 thus decreased by SEK 92m and SEK 30m, respectively, while other trade payables increased by the corresponding amounts.

NOTE 30 LiquiDiTy RiSK

The table below shows the Group’s liquidity risk regarding financial liabilities (including interest payments), net settled derivatives that constitute financial liabilities and negative cash flows from gross settled derivatives.

Liquidity risk

SEKm Less than

1 yearBetween

1 and 5 yearsMore than

5 years

31 December 2010

Loans including interest 13,531 18,927 7,313

Net settled derivatives –24 24 –20

Share swaps – – –

Energy derivatives 59 7 –

Trade payables 12,435 1,139 –

Total 26,001 20,097 7,293

Gross settled derivatives1) 23,691 125 –

31 December 2009

Loans including interest 14,238 24,452 8,565

Net settled derivatives –18 –90 178

Share swaps – – –

Energy derivatives 180 83 –

Trade payables 11,446 826 –

Total 25,846 25,271 8,743

Gross settled derivatives1) 22,107 151 –

31 December 2008

Loans including interest 14,600 30,337 15,043

Net settled derivatives 16 56 231

Share swaps 31 – –

Energy derivatives 242 92 –

Trade payables 13,155 1,000 –

Total 28,044 31,485 15,274

Gross settled derivatives1) 21,686 166 –

1) The gross settled derivatives have, largely, corresponding positive cash flows and therefore in SCA’s opinion do not constitute any real liquidity risk.

NOTE 27 OTHER PROViSiONS

SEKm Acquisitions

and disposalsEfficiency

programmesCurrent

operations Tax risks Environment Legal disputes Other Total

Value at 1 January 1 827 6 258 261 32 199 1,584

Provisions during the year 787 16 1 198 46 1,048

Provisions attributable to discontinued operations –7 –7

Utilisation during the year –1 –718 –7 –215 –5 –18 –964

Reclassifications 103 –10 2 95

Dissolved during the year –1 –7 –173 –181

Translation differences –92 –2 –25 –3 –6 –128

Value at 31 December 0 900 14 247 219 63 4 1,447

Provisions comprise:

Short-term component 894

Long-term component 553

Other provisions amount to SEK 1,447m (1,584; 1,695). During the year, new provisions were made totalling SEK 1,048m, of which SEK 197m relates to provisions for the restructuring programme initiated in 2009 within the packaging business aimed at adapting the operation’s capacity and costs. SEK 527m pertains to provisions for restructuring programmes in the Personal Care business and SEK 63m for restructuring programmes in the Forest Products business, both of which were introduced in 2010. Of provisions for the year for Environment

totalling SEK 198m, SEK 176m pertains to a liability for carbon dioxide emissions. Of the effi-ciency programmes’ provisions, SEK 718m were paid out in 2010, SEK 569m are anticipated to be paid out in 2011, SEK 274m in 2012 and the remaining SEK 57m in 2013. Provisions for efficiency programmes were changed in 2010 due to reclassifications of SEK 103m from other operating liabilities.

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NOTE 31 FiNANCiAL iNSTRuMENTS By CATEGORy

The following categorisation has been conducted for financial instruments:Of which

Carrying amount

in the balance

SEKm sheet

Loans and

receiva-bles

Financial liabilities

measured at amortised

cost

Measured at fair value

through profit

or loss

Derivatives used for

hedge accounting

Available-for-sale

financial assets

31 December 2010

Non-current financial assets 2,198 82 74 676 1,366

Other non-current assets 65 – 1 64 –

Trade receivables 15,616 15,616 – – –

Other current receivables 539 – 144 395 –

Current financial assets 220 112 96 12 –

Cash and cash equivalents 1,866 1,866 – – –

Total assets 20,504 17,676 315 1,147 1,366

Non-current financial liabilities 23,459 16,198 7,092 169

Other non-current liabilities 7 – – 7

Current financial liabilities 13,047 6,537 6,504 6

Trade payables1) 13,574 13,574 – –

Other current liabilities 169 – 58 111

Total liabilities 50,256 36,309 13,654 293

31 December 2009

Non-current financial assets 1,832 77 18 695 1,042

Other non-current assets 14 – 1 13 –

Trade receivables 16,103 16,103 – – –

Other current receivables 217 – 89 128 –

Current financial assets 194 128 55 11 –

Cash and cash equivalents 5,148 5,148 – – –

Total assets 23,508 21,456 163 847 1,042

Non-current financial liabilities 30,343 16,925 13,293 125

Other non-current liabilities 75 – 1 74

Current financial liabilities 13,761 13,454 279 28

Trade payables1) 12,364 12,364 – –

Other current liabilities 280 – 57 223

Total liabilities 56,823 42,743 13,630 450

31 December 2008

Non-current financial assets 1,656 82 48 812 714

Other non-current assets 8 – 1 7 –

Trade receivables 18,364 18,364 – – –

Other current receivables 248 – 146 102 –

Current financial assets 642 186 451 5 –

Cash and cash equivalents 5,738 5,738 – – –

Total assets 26,656 24,370 646 926 714

Non-current financial liabilities 38,859 24,086 14,579 194

Other non-current liabilities 92 – 2 90

Current financial liabilities 13,170 12,792 360 18

Trade payables1) 14,186 14,186 – –

Other current liabilities 550 – 280 270

Total liabilities 66,857 51,064 15,221 572

1) As of 2010, bills payable are included in trade payables instead of in other current liabilities. Reclassification was conducted for the comparative years 2009 and 2008.

Distribution by level when measured at fair value

Carrying amount 31 December 2010Of which fair value

by Level

SEKm

Measured at fair value

through profit or loss

Derivatives used for

hedge accounting

Available- for-sale

financial assets 1 2 3

31 December 2010

Derivatives 315 1,147 – – 1,462 –

Non-current financial assets, excluding derivatives – – 1,366 1,358 8 –

Total assets 315 1,147 1,366 1,358 1,470

Derivatives 260 293 – – 553 –

Total liabilities 260 293 – – 553 –

Carrying amount 31 December 2009Of which fair value

by Level

SEKm

Measured at fair value

through profit or loss

Derivatives used for

hedge accounting

Available- for-sale

financial assets 1 2 3

31 December 2009

Derivatives 163 847 – – 1,010 –

Non-current financial assets, excluding derivatives – – 1,042 1,034 8 –

Total assets 163 847 1,042 1,034 1,018 –

Derivatives 337 450 – – 787 –

Total liabilities 337 450 – – 787 –

The table above specifies how financial instruments, excluding financial liabilities, were meas-ured at fair value in accordance with the fair value hierarchy with the following three levels:Level 1: Quoted prices on an active market for identical assets or liabilities, such as shares or bonds quoted on the stock exchange.Level 2: Other observable inputs for the asset or liability than quoted prices included in Level 1, either directly (that is, price quotations) or indirectly (that is, obtained from price quota-tions), such as forward contracts or interest rate swaps.Level 3: Inputs for the asset or liability not based on observable market data, but containing the assumptions and estimates of management, for example, unquoted shares.

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NOTE 32 CONTiNGENT LiABiLiTiES

SEKm 2010 2009 2008

Guarantees for

employees 3 3 6

associates 25 30 35

customers and others 42 40 38

Tax disputes 270 311 471

Other contingent liabilities 44 70 72

Total 384 454 622

Contingent liabilities for tax disputes mainly relate to claims for additional taxes in Spain. The claim by the Spanish tax authorities amounts to EUR 26,6m, including interest. The claim is related to restructuring measures that the sellers of a Spanish company carried out prior to SCA’s acquisition of the company in 1997. SCA has provided a security for payment of the tax, but is challenging the claim and assesses that the claim will not be upheld in court. Con-sequently, no provision has been made in the closing accounts.

SCA entered into lease-out/lease-in transactions during 1996 with US banks as counter-parties pertaining to the two LWC plants in Ortviken, Sweden. The terms of the contracts were originally 32 and 36 years. However, SCA has the opportunity to cancel the transac-tions in 2014 and 2015, respectively, without incurring any financial consequences. At the time the transactions were entered into, the net present value of the leasing amount which SCA has undertaken to pay amounted to about SEK 4bn or USD 611m. This amount, in accordance with the agreements, is partly deposited in accounts in banks with at least A rat-ing, and partly in US securities with an AAA rating. SCA carries the credit risk against the depositary banks. Should the rating of a depositary bank decline in the future, SCA has the possibility to transfer the deposit to another bank with a better rating. Moreover, SCA is liable to take such action if the depositary bank’s rating falls below A+.

The counterparties have accepted that the deposited funds are applied for the leasing undertakings. The advance payments and deposits were netted during 1996 in the balance sheet. Should SCA as the result of extraordinary events (of a force majeure nature) elect not to fulfil, or cannot fulfil the leasing contracts, SCA is liable to compensate the counterparties for financial losses, which may be incurred as a result. Compensation varies during the dura-tion and can amount to a maximum of about 10% of the present value of the leasing amount. The agreements were composed and examined by legal experts in Sweden and the US and are considered to follow the standard practice for lease-out/ lease-in transactions.

During 2000, SCA also entered into a leasing transaction with US banks as counterpar-ties pertaining to the Östrand pulp mill in Timrå, Sweden. The term of the transaction was originally 30 years. However, SCA has the opportunity to cancel the transactions in 2017 without incurring any financial consequences. At the time the transactions were entered into, the current value of the leasing amount that SCA has undertaken to pay amounted to about SEK 4bn or USD 442m. Of this amount, in accordance with the agreement, an amount cor-responding to SEK 3.6bn was partly invested in accounts in banks, partly in US securities, which at the time of the agreement had an AA and AAA rating, respectively. In 2009, the leasing transaction with one of the US banks was terminated prematurely. The value of out-standing deposits and US securities subsequently amounted to SEK 1.67bn at 31 Decem-ber 2010. SCA carries the credit risk against the depositary banks. Should the rating of a depositary bank decline in the future, SCA has the possibility to transfer the deposit to another bank with a better rating. SCA also has an obligation to exchange the US securities if their rating falls below AA- or A, respectively. The rating of the original securities declined in 2008, which resulted in SCA exchanging these securities for bank-guaranteed securities. The counterparties have accepted that the deposited funds are applied for the leasing undertakings. The advance payments and deposits were netted during 2000 in the balance sheet. Should SCA as the result of extraordinary events (of a force majeure nature) elect not to fulfil, or cannot fulfil the leasing contracts, SCA is liable to compensate the counterparties for financial losses, which may be incurred as a result. Compensation varies during the dura-tion and can amount to a maximum of about 10% of the present value of the leasing amount, which subsequent to the above-mentioned premature termination, amounts to USD 227m. The agreements, as in the 1996 transactions, were composed and examined by legal experts in Sweden and the US and are considered to follow the standard practice for this type of transaction.

In 2007, SCA entered into a sale and leaseback transaction with a European bank relating to the new soda recovery boiler at the liner plant in Obbola, Sweden. The original term of the con-tract is 25 years and SCA has a right to terminate the transaction in 2023 without any financial consequences. The present value of SCA’s future rental amounts was SEK 671m, which was invested in a security with an AA rating issued by the counterparty and deposited in a Swedish bank assigned to handle rental payments during the term of the contract. Should the counter-party’s rating fall below BBB-, SCA is entitled, without incurring any financial consequences, to terminate the transaction in advance. Should SCA as the result of extraordinary events (of a force majeure nature) elect not to fulfil, or cannot fulfil the leasing contract, SCA is liable to com-pensate the counterparty for any economic loss that may be incurred as a result. Compensa-tion varies during the term and can amount to a maximum of 15% of the transaction amount. SCA has the use of the facility without operational restrictions. The lease and depositary arrangement were recognised net in SCA’s balance sheet in 2007.

With regard to three vessels included in SCA’s distribution system, SCA was previously obliged to enter a charter or purchase the vessels should SCA’s counterparty be unable to fulfil its obligations to the vessels’ owners. This obligation expired during the year.

In 2005, SCA signed an eight-year fixed-price agreement with a Swedish electricity sup-plier for electricity deliveries to the company’s Swedish plants. The agreement covers approximately 45% of estimated consumption at these plants. SCA signed a ten-year fixed-price agreement with a Norwegian electricity supplier comprising electricity deliveries corre-sponding to approximately 17% of the estimated consumption. The agreement with the Norwegian supplier became effective in 2009.

NOTE 33 PLEDGED ASSETS

Total

SEKm

Pledged assets related to financial

liabilities Other 2010 2009 2008

Real estate mortgages 6 – 6 8 484

Chattel mortgages 11 20 31 31 26

Other – 139 139 140 140

Total 17 159 176 179 650

Liabilities for which some of these assets were pledged as collateral amounted to SEK 0m (0; 1).

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NotE 34 oPERAtING PRoFIt

operating profit by type of costSEKm 2010 2009

Other operating income 185 196

Other external costs –179 –177

Personnel and Board costs –293 –264

Depreciation –49 –47

Other operating expenses –135 –145

total –471 –437

In 2010, Other external costs included an impairment loss on a receivable in the amount of SEK 5m (9). External costs also include consultancy fees, travel expenses, management costs, and so forth.

AUDItING CoStSRemuneration to auditors can be specified as follows:

SEKm 2010 2009

PwC

Audit assignments 8 8

Tax consultancy services 3 5

Other assignments 5 3

total 16 16

LEASINGFuture payment commitments for non-cancellable operating leases are as follows:

SEKm 2010 2009

Within 1 year 31 31

Between 2 and 5 years 181 168

Later than 5 years 117 162

total 329 361

Cost for the year for leasing of assets amounted to SEK 45m (50). Leased assets comprise means of transportation, premises and technical equipment. In reality, such contracts can be terminated early.

NotE 35 PERSoNNEL AND BoARD CoStS

Salaries and remunerationSEKm 2010 2009

Board of Directors 1), President, Executive Vice Presidents and Senior Executives (4 (5)) 44 50

of which variable salary 15 19

Other employees 110 105

total 154 155

1) Board fees decided by the Annual General Meeting amounted to SEK 4.6m (4.6). For further information, see Note 6.

Social security costsSEKm 2010 2009

Total social security costs 131 96

of which, pension costs2) 84 47

2) Of the Parent Company’s pension costs, SEK 32m (9) pertain to the Board, President, Executive Vice Pres-idents and senior executives. Former Presidents and Executive Vice Presidents and their survivors are also included. The company’s outstanding pension obligations to these individuals amount to SEK 286m (300).

Pension costsSEKm 2010 2009

Self-administered pension plans

Costs excl. interest expense 38 –8

Interest expense (recognised in personnel costs) 15 18

53 10

Retirement through insurance

Insurance premiums 18 21

Other –1 7

70 38

Policyholder tax 0 1

Special payroll tax on pension costs 14 7

Cost of credit insurance, etc. 0 1

Pension costs for the year 84 47

Premiums during the year for disability and family pension insurance with Alecta amounted to SEK 4m (4). (See also Note 26 Pension Provisions, Page 87). Personnel costs also include other personnel costs in the amount of SEK 8m (13).

Average number of employees2010 2009

Sweden 100 105

of whom women, % 50 50

Breakdown of employees by age groups, %2010 21–30 yrs 31–40 yrs 41–50 yrs 51–60 yrs 61– yrs

5 39 29 20 7

Of the total number of Board members and senior executives, 9% (9) and 21% (14), respec-tively, are women.

Absence due to illness, %2010 2009

Total absence due to illness of normal working hours 2 2

Men 0 1

Women 3 2

Of which, continuous absence due to illness of 60 days or more 67 40

Breakdown of absence due to illness by age group, %–29 yrs 30–49 yrs 50– yrs

0 2 1

NotE 36 DEPRECIAtIoN oF tANGIBLE AND INtANGIBLE ASSEtS

SEKm 2010 2009

Buildings 5 5

Land improvements 43 40

Machinery and equipment 1 1

Sub-total 49 46

Capitalised development costs 0 1

total 49 47

NotE 37 FINANCIAL ItEMS

SEKm 2010 2009

Income from participations in Group companies

Dividends from subsidiaries 3,068 35,017

Expenses from participations in other companies

Capital gains –2 –

Interest income and similar profit/loss items

Interest income, external 701 163

Interest income, subsidiaries 211 197

Interest expenses and similar profit/loss items

Interest expenses, external –258 –226

Interest expenses, subsidiaries –2,085 –1,363

total 1,635 33,788

NotE 38 APPRoPRIAtIoNS AND UNtAXED RESERVES

Of the Parent Company’s untaxed reserves, SEK 156m (147) pertains to accumulated depreciation in excess of plan.

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NotE 39 iNcomE tAXES

tax on profit for the yearSEKm 2010 2009

Tax income (–) –899 –485

Deferred tax expense (+) 383 52

total –516 –433

2010 2009

Reconciliation SEKm % SEKm %

Tax expense –516 –44.7 –433 –1.3

Expected tax 304 26.3 8,769 26.3

Difference –820 –71.0 –9,202 –27.6

Difference is due to:

Taxes related to prior periods –11 –1.0 7 0.0

Non-taxable dividends from subsidiaries –807 –69.9 –9,209 –27.6

Other non-taxable/non-deductible items –2 –0.1 0 0.0

total –820 –71.0 –9,202 –27.6

The Parent Company participates in the Group’s tax pooling arrangement and pays the majority of the Group’s total Swedish taxes. The recognised current tax income represents the portion of the Group’s total Swedish taxes. Other Group companies that participate in the tax-pooling arrangement have tax expenses totalling SEK 899m (485). The Parent Com-pany’s liability to subsidiaries for taxes paid on their account is reported as a current liability to subsidiaries.

current tax income (–)SEKm 2010 2009

Income tax for the period –899 –485

Adjustments for prior periods 0 0

total –899 –485

cURRENt tAX LiABiLitY (+), tAX ASSEtS (–) The change to the current tax liability during the period is explained below:

SEKm 2010 2009

Balance, 1 January –18 –18

Current tax income –899 –485

Paid tax 0 0

Tax expense, other Group companies 899 485

Value at 31 December –18 –18

DEFERRED tAX EXPENSE (+), tAX iNcomE (–)

SEKm 2010 2009

Changes in temporary differences 394 45

Adjustments for prior periods –11 7

Deferred tax expense (+) 383 52

PRoViSioNS FoR tAXThe change to the provisions for tax is explained below:

SEKm

carrying amount,

1 JanuaryDeferred tax

expense

carrying amount,

31 December

Land and buildings 1,391 2 1,393

Provisions for pensions –100 –13 –113

Tax loss carryforwards –1,031 394 –637

Other –47 – –47

total 213 383 596

NotE 40 iNtANGiBLE ASSEtS

capitalised development costsSEKm 2010 2009

Accumulated costs 35 35

Accumulated amortisation –34 –34

Residual value according to plan 1 1

carrying amount, 1 January 1 2

Investments – –

Amortisation for the year 0 –1

carrying amount, 31 December 1 1

NotE 41 tANGiBLE ASSEtS

Buildings Landmachinery and

equipment

SEKm 2010 2009 2010 2009 2010 2009

Accumulated cost 151 151 1 925 1 811 22 16

Accumulated depreciation –83 –78 –647 –604 –6 –15

Accumulated write-ups – – 5 079 5 079 – –

Planned residual value 68 73 6 357 6 286 16 1

carrying amount, 1 January 73 77 6 286 6 249 1 2

Investments 0 1 117 79 16 0

Sales and disposals – 0 –3 –2 0 0

Depreciation for the year –5 –5 –43 –40 –1 –1

carrying amount, 31 December 68 73 6 357 6 286 16 1

Tax assessment value 43 38 15 408 15 422

Land includes forest land in the amount of SEK 5,847m (5,817).

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NotE 42 SHARES

Subsidiaries other companies

SEKm 2010 2009 2010 2009

Accumulated costs 123,994 123,994 11 11

Accumulated write-ups 140 140 – –

Accumulated impairment losses –140 –140 0 0

Planned residual value 123,994 123,994 11 11

Carrying amount, 1 January 123,994 62,395 11 11

Investments – 31,598 324 –

Increase through acquisition of subsidiaries – 30,001 – –

Divestments – 0 –324 –

Carrying amount, 31 December 123,994 123,994 11 11

The increase in 2009 is attributable to a capital injection of SEK 30,000m, subscription to a new share issue in the amount of SEK 1,599m and the distribution of all shares in a subsidiary valued at net worth of SEK 30,001m. The 2010 events pertain to the purchase and sale of shares in AB Industrivärden.

Parent Company’s holdings of shares and participations in subsidiaries, 31 December 2010

Company name Corp. Reg. No. DomicileNo. of

sharesShare of

equity, %

Carrying amount,

SEKm

Swedish subsidiaries:

Fastighets- och Bostads-aktiebolaget FOBOF 556047-8520 Stockholm 1,000 100 0

SCA Försäkrings-aktiebolag 516401-8540 Stockholm 140,000 100 14

SCA Kraftfastigheter AB 556449-7237 Stockholm 1,000 100 0

SCA Research AB 556146-6300 Stockholm 1,000 100 0

SCA Hedging AB 556666-8553 Stockholm 1,000 100 0

Foreign subsidiaries:

SCA Group Holding BV 33181970 Amsterdam 246,347 100 89,598

SCA Packaging Coordination Center NV BTW BE 864.768.955 Diegem 1,079,999 100 985

SCA Packaging Marketing NV BTW BE 0421.120.154 Diegem 731,279 100 1,798

SCA Capital NV 0810.983.346 Diegem 999,999, 100 30,001

SCA UK Holdings Ltd 03665635 Dunstable 1 0 0

SCA Finanziaria S.p.A 01307260461 Milano 15,579,200 75 1,598

total carrying amount of subsidiaries 123,994

NotE 43 RECEIVABLES FRoM AND LIABILItIES to SUBSIDIARIES

SEKm 2010 2009

Non-current assetsInterest-bearing receivables 471 269

total 471 269

Current assets

Other receivables 6,005 2,281

total 6,005 2,281

Current liabilities

Interest-bearing liabilities 71,832 70,573

Other liabilities 4,911 4,229

total 76,743 74,802

NotE 44 otHER CURRENt RECEIVABLES

SEKm 2010 2009

Prepaid expenses and accrued income 10 15

Other receivables 86 108

total 96 123

NotE 45 EQUItY

The change in equity is shown in the financial report relating to Equity presented on page 61. The share capital and number of shares have increased since 1993 with new issues, conver-sions and splits as set out below:

Year Event No. of sharesIncrease in

share capitalCash payment,

SEKm

1993 Number of shares, 1 January 1993 172,303,839

1993Conversion of debentures and new subscription through warrants 1 4,030,286 40.3 119.1

New issue 1:10, issue price SEK 80 17,633,412 176.3 1,410.7

1994 Conversion of debentures 16,285 0.2 –

1995 Conversion of debentures 3,416,113 34.2 –

1999 New issue 1:6, issue price SEK 140 32,899,989 329.0 4,579.0

2000 Conversion of debentures 101,631 1.0 15.0

2001 New issue, private placement 1,800,000 18.0 18.0

2002 New subscription through warrants IIB 513 0 0.1

2003 Conversion of debentures 1,127,792 11.3 288.4

New subscription through warrants IIB 1,697,683 17.0 434.5

2004 Conversion of debentures 9,155 0.1 1.1

2007 Split 3:1 470,073,396 – –

2010 Number of shares, 31 December 2010 705,110,094

SCA’s share capital, 31 December 2010Number of votes

Number of shares

Share capital, SEKm

A shares 10 101,408,278 338

B shares 1 603,701,816 2,012

total 705,110,094 2,350

The quotient value of the Parent Company’s shares amounts to SEK 3.33.Treasury shares at the beginning and at the end of the year amounted to 2,767,605

shares. Shares were held as part of the employee stock option programmes that expired in 2008 and 2009.

NotE 46 PRoVISIoNS FoR PENSIoNS

The Parent Company has both defined-contribution and defined-benefit pension plans. Below is a description of the Parent Company’s defined-benefit plans.

PRI PENSIoNSPension liabilities pertaining to PRI pensions have been secured through a common Swed-ish SCA pension fund. The market value of the Parent Company’s portion of the foundation’s assets at 31 December 2010 amounted to SEK 73m (56). In the past two years, no compen-sation has been received. The capital value of the pension obligations at 31 December 2010 amounted to SEK 83m (78). Pension payments of SEK 3m (2) were made during 2010. Since the value of the assets in 2010 is below that of the pension obligations in the amount of SEK 10m (22), this is recognised as a provision in the balance sheet. The provision is included below.

otHER PENSIoN oBLIGAtIoNSNote 6 Personnel and Board costs in the Group’s notes describes the other defined-benefit pension plans that the Parent Company offers. The table below shows the change between the years.

Capital value of pension obligations relating to self-administered pension plansSEKm 2010 2009

Value at 1 January 415 419

Costs excl. interest expense 38 –8

Interest expense (recognised in personnel costs) 15 18

Payment of pensions –15 –14

Value at 31 December 453 415

External actuaries have carried out capital value calculations pursuant to the provisions of the Swedish Act on Safeguarding of Pension Obligations. The discount rate is 3.5% (4.2). The defined-benefit obligations are calculated based on salary levels valid on the respective balance sheet dates.

Next year’s expected disbursements regarding defined-benefit pension plans amount to SEK 23m.

SCA Annual Report 2010 | Board of Directors’ Report94

Financial statements | Notes – Parent Company

Page 99: SCA Annual Report 2010 En

NotE 47 NoN-CURRENt INtERESt-BEARING LIABILItIES

Carrying amount Fair value

SEKm 2010 2009 2010 2009

Bond issues 2,000 – 2,065 –

Other non-current loans with a term > 1 year < 5 yrs 3,628 5,363 3,583 5,689

Other non-current loans with a term > 5 yrs 3,628 2,203 3,701 2,004

total 9,256 7,566 9,349 7,693,

Bond issues

Issued MaturityCarrying

amount, SEKmFair value,

SEKm

Notes SEK 1,800m 2016 1,800 1,870

Floating Rate Note SEK 200m 2016 200 195

total 2,000 2,065

NotE 48 otHER CURRENt LIABILItIES

other current liabilitiesSEKm 2010 2009

Accrued expenses and prepaid income 181 167

Current provisions – 2

Other operating liabilities 6 9

total 187 178

Accrued expenses and prepaid incomeSEKm 2010 2009

Accrued interest expenses 62 57

Accrued social security costs 19 21

Accrued vacation pay liability 9 9

Other liabilities to personnel 42 47

Other items 49 33

total 181 167

NotE 49 CoNtINGENt LIABILItIES

SEKm 2010 2009

Guarantees for:

– subsidiaries 26,422 43,913

Other contingent liabilities 19 17

total 26,441 43,930

In addition, the Parent Company has signed subsidiary guarantees for 19 Dutch companies. The Parent Company guarantees all the companies’ obligations as if they were its own debt.

The Parent Company has issued a guarantee in relation to the Group’s UK pension plan in the event of the plan being dissolved or one of the companies covered by the plan becoming insolvent.

The Parent Company is also a guarantor for all the subsidiary SCA Graphic Sundsvall AB’s obligations according to contracts regarding physical deliveries of electric power between 2005 and 2013.

NotE 50 PLEDGED ASSEtS

SEKm

Liabilities to credit

institutions othertotal 2010

total 2009

Real estate mortgages – – – –

Chattel mortgages – 20 20 20

Other – 135 135 135

total 0 155 155 155

NotE 51 FINANCIAL INStRUMENtS BY CAtEGoRY

The accounting principles for financial instruments are applied for the items below.The financial instruments in the Parent Company are classified as loans and receivables

for assets, and other financial liabilities measured at amortised cost for liabilities. No other categories have been utilised over the past two years. These balance sheet items are not fully reconcilable since they may include items that are not financial instruments.

Loans and receivablesSEKm 2010 2009

Assets in the balance sheet

Financial fixed assets

Interest-bearing receivables 128 130

Interest-bearing receivables from subsidiaries 471 269

Current assets

Receivables from subsidiaries 119 112

Other current receivables 58 70

Cash and bank balances – –

total 776 581

Financial liabilities measured at amortised costSEKm 2010 2009

Liabilities in the balance sheet

Non-current liabilities

Interest-bearing liabilities 9,256 7,566

Current liabilities

Liabilities to subsidiaries 72,051 70,792

Trade payables 17 11

Other current liabilities 62 57

total 81,386 78,426

NotE 52 ADoPtIoN oF tHE ANNUAL ACCoUNtS

The annual accounts are subject to adoption by SCA’s Annual General Meeting and will be presented for approval at the Annual General Meeting on 7 April 2011.

Board of Directors’ Report | SCA Annual Report 2010 95

Notes – Parent Company | Financial statements

Page 100: SCA Annual Report 2010 En

Sverker Martin-LöfChairman of the Board

Pär Boman Rolf Börjesson Sören Gyll Leif Johansson Lars Jonsson Board member Board member Board member Board member Board member

Anders Nyrén Örjan Svensson Barbara Milian Thoralfsson Thomas Wiklund Board member Board member Board member Board member

Jan JohanssonPresident and CEO

Our audit report was submitted on 22 February 2011 PricewaterhouseCoopers AB

Anders LundinAuthorised Public Accountant

Proposed distribution of earnings

Annual accounts 2010Distribution of earnings, Parent Company

Distribution equity in the Parent Company:

retained earnings 37,088,244,090

net profit for the year 1,670,617,301

total 38,758,861,391

The Board of Directors and the President proposes:

to be distributed to shareholders, a dividend of SEK 4.00 per share 2,809,369,9561)

to be carried forward 35,949,491,435

total 38,758,861,391

Stockholm, 22 February 2011

The Board of Directors and President declare that the Annual Report has been prepared in accordance with generally accepted accounting principles, that the consolidated financial statements have been prepared in accordance with the international finan-cial reporting standards referred to in European Parliament and Council of Europe Regulation (EC) No. 1606/2002 of 19 July 2002, on application of international financial reporting standards, that disclosures herein give a true and fair view of the Parent Company’s and Group’s financial position and results of operations, and that the statutory Board of Directors’ Report provides a fair review of the Parent Company’s and Group’s operations, financial position and results of operations and describes material risks and uncertainties facing the Parent Company and the companies included in the Group.

1) Based on the number of outstanding shares at 31 December 2010. The amount of the dividend may change if any treasury share transactions are executed before the record date, 12 April 2011.

SCA Annual Report 2010 | Board of Directors’ Report96

Financial statements | Proposed distribution of earnings

Page 101: SCA Annual Report 2010 En

Audit report

Independent assurance report relating to Sustainability Report

To the Annual Meeting of Shareholders in Svenska Cellulosa Aktiebolaget SCA (publ) Corporate identity number 556012-6293

We have audited the annual accounts, the consolidated accounts, the

accounting records and the administration of the Board of Directors and the

President of Svenska Cellulosa Aktiebolaget SCA (publ) for the year 2010.

The company’s annual accounts and the consolidated accounts are

included in the printed version of this document on pages 10–96. The Board

of Directors and the President are responsible for these accounts and the

administration of the company as well as for the application of the Annual

Accounts Act when preparing the annual accounts and application of Inter-

national Financial Reporting Standards, IFRS, as adopted by the EU and the

Annual Accounts Act when preparing the consolidated accounts. Our

responsibility is to express an opinion on the annual accounts, the consoli-

dated accounts and the administration based on our audit.

We conducted our audit in accordance with generally accepted auditing

standards in Sweden. Those standards require that we plan and perform the

audit to obtain reasonable assurance that the annual accounts and the con-

solidated accounts are free from material misstatement. An audit includes

examination, on a test basis, of evidence supporting the amounts and dis-

closures in the accounts. An audit also includes assessing the accounting

policies used and of their application by the Board of Directors and the Pres-

ident and significant estimates made by the Board of Directors and the Pres-

ident when preparing the annual accounts and consolidated accounts as

well as evaluating the overall presentation of information in the annual

accounts and the consolidated accounts. As a basis for our opinion con-

cerning discharge from liability, we examined significant decisions, actions

taken and circumstances of the company in order to be able to determine

the liability, if any, to the company of any Board member or the President. We

also examined whether any Board member or the President has, in any other

way, acted in contravention of the Companies Act, the Annual Accounts Act

or the Articles of Association. We believe that our audit provides a reasona-

ble basis for our opinion set out below.

The annual accounts have been prepared in accordance with the Annual

Accounts Act and give a true and fair view of the company’s financial posi-

tion and results of operations in accordance with generally accepted

accounting principles in Sweden. The consolidated accounts have been

prepared in accordance with International Financial Reporting Standards

(IFRS) as adopted by the EU and the Annual Accounts Act and give a true

and fair view of the Group’s financial position and results of operations. A

Corporate Governance Report was prepared. The statutory Board of Direc-

tors’ Report and the Corporate Governance Report are consistent with the

other parts of the annual accounts and the consolidated accounts.

We recommend to the Annual General Meeting of shareholders that the

income statements and balance sheets of the Parent Company and the

Group be adopted, that the profit of the Parent Company be dealt with in

accordance with the proposal in the Board of Directors’ Report, and that the

members of the Board of Directors and the President be discharged from lia-

bility for the financial year.

Stockholm, 22 February 2011

PricewaterhouseCoopers AB

Anders Lundin

Authorised Public Accountant

Auditor-in-charge

Pages 50–53 of this document contain an extract of the Sustainability Report. A complete Sustainability Report has been prepared by the company, which

contains our full assurance report. Based on our review, nothing has come to our attention that causes us to believe that the sustainability report has not, in

all material respects, been prepared in accordance with the criteria stipulated in the full version of the assurance report.

Stockholm, 22 February 2011

PricewaterhouseCoopers AB

Anders Lundin Fredrik Ljungdahl

Authorised Public Accountant Expert member, FAR SRS

Board of Directors’ Report | SCA Annual Report 2010 97

Audit report | Financial statements

Page 102: SCA Annual Report 2010 En

SEKm 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001

INCOME STATEMENT

Net sales 109,142 110,857 110,449 105,913 101,439 96,385 89,967 85,338 88,046 82,380

Operating profit 8,677 8,190 8,554 10,147 8,505 1,928 7,669 7,757 9,101 9,492

Personal Care 2,922 3,235 2,912 2,960 2,799 2,474 2,429 2,403 2,588 2,080

Tissue 3,041 3,946 2,375 1,724 1,490 1,577 2,026 2,418 2,899 2,393

Packaging 1,577 413 1,493 2,651 2,072 1,775 2,604 2,482 3,065 3,286

Forest Products 2,455 2,503 2,207 2,870 2,475 1,886 1,777 1,559 1,986 2,976

Other operations 1) –1,318 –1,907 –433 –58 –331 –5,784 –1,167 25 –300 –233

Goodwill amortisation – – – – – – – –1,130 –1,137 –1,010

Financial income 64 158 246 193 179 156 453 544 409 380

Financial expenses –1,180 –1,802 –2,563 –2,103 –1,851 –1,651 –1,537 –1,334 –1,432 –1,782

Profit before tax 7,561 6,546 6,237 8,237 6,833 433 6,585 6,967 8,078 8,090

Tax –1,969 –1,716 –639 –1,076 –1,366 21 –1,393 –1,861 –2,341 –2,444

Non-controlling interests – – – – – – – –31 –44 –59

Profit for the year 5,592 4,830 5,598 7,161 5,467 454 5,192 5,075 5,693 5,587

BALANCE SHEET

Non-current assets (excl. financial receivables) 105,655 111,745 113,866 104,150 95,994 101,840 96,162 77,885 75,462 76,967

Receivables and inventories 31,890 30,605 36,121 33,793 29,907 29,356 25,681 22,880 24,765 23,338

Non-current assets held for sale 93 105 102 55 2,665 68 – – – –

Financial receivables 3,254 2,062 2,499 3,663 2,970 2,035 682 4,146 6,151 3,888

Short-term investments 220 194 642 366 409 237 128 749 306 406

Cash and bank balances 1,866 5,148 5,738 3,023 1,599 1,684 3,498 1,696 2,520 2,189

Total assets 142,978 149,859 158,968 145,050 133,544 135,220 126,151 107,356 109,204 106,788

Equity 67,255 67,156 66,450 63,590 58,299 56,343 54,350 49,754 47,983 45,983

Non-controlling interests 566 750 802 689 664 767 768 751 687 736

Provisions 13,908 13,351 13,292 14,199 14,240 17,035 16,962 13,620 14,773 14,870

Interest-bearing debt 37,297 44,766 52,886 42,323 38,601 39,036 35,021 25,429 27,498 27,746

Operating and other non-interest bearing liabilities 23,952 23,836 25,538 24,249 21,740 22,039 19,050 17,802 18,263 17,453

Total liabilities and equity 142,978 149,859 158,968 145,050 133,544 135,220 126,151 107,356 109,204 106,788

Capital employed 2) 105,333 112,264 105,955 96,368 96,192 95,341 87,208 71,687 71,863 67,878

Net debt, incl. pension liabilities –34,406 –40,430 –47,002 –37,368 –36,399 –39,826 –34,745 –22,306 –23,899 –23,861

CASH FLOW STATEMENT

Operating cash flow 9,755 14,133 7,813 8,127 6,304 7,471 8,837 10,102 12,421 14,206

Cash flow from current operations 7,399 11,490 3,810 4,508 2,772 4,362 5,688 8,134 8,620 11,249

Cash flow before dividend 5,776 8,483 77 1,473 1,538 1,768 –6,276 901 –855 –4,254

Current capital expenditures –3,647 –4,037 –5,353 –5,165 –5,672 –4,859 –4,270 –3,902 –3,523 –3,479

Strategic capital expenditures –2,427 –3,031 –3,109 –1,342 –935 –2,086 –2,398 –2,949 –2,823 –1,469

Acquisitions –493 –51 –1,764 –4,545 –323 –428 –9,340 –4,808 –6,483 –13,286

KEY RATIOS 3)

Equity/assets ratio, % 47 45 42 44 44 42 44 47 45 44

Interest coverage, multiple 7.8 5.0 3.7 5.3 5.1 1.3 7.1 9.8 8.9 6.8

Debt payment capacity incl. pension liabilities, % 35 31 26 35 29 27 35 54 47 51

Debt/equity ratio, incl. pension liabilities, multiple 0.51 0.60 0.70 0.58 0.62 0.70 0.63 0.44 0.49 0.51

Return on capital employed, % 8 7 8 11 9 2 9 11 13 14

Return on capital employed, excluding items affecting comparability, % 9 9 8 10 9 8 10 10 13 14

Return on equity, % 8 7 9 12 9 1 10 10 12 13

Operating margin, % 8 7 8 10 8 2 9 9 10 12

Operating margin, excluding items affecting comparability, % 9 9 8 9 8 8 9 9 10 12

Net margin, % 5 4 5 7 6 0 6 6 6 7

Capital turnover rate, multiple 1.04 0.99 1.04 1.10 1.05 1.01 1.03 1.19 1.23 1.21

Operating cash flow per share, SEK 10.53 16.36 5.42 6.42 3.95 6.22 8.12 11.66 12.37 16.13

Earnings per share, SEK 7.90 6.78 7.94 10.16 7.75 0.61 7.37 7.28 8.18 8.02

Dividend per share, SEK 4.004) 3.70 3.50 4.40 4.00 3.67 3.50 3.50 3.20 2.92

1) 2010, 2009, 2007, 2005 and 2004 include items affecting comparability of SEK –931m, SEK –1,458m, SEK 300m, SEK –5,365m and SEK –770m, respectively.2) Calculation of average capital employed based on five measurements.3) Key ratios are defined on page 102.4) Board proposal.

Multi-year summary

SCA Annual Report 201098

SCA Data

Page 103: SCA Annual Report 2010 En

Comments to the multi-year summary

Income statementSales

In 2001, sales rose by slightly more than 20% as

a result of the acquisitions of Georgia-Pacific Tis-

sue and Tuscarora in North America. During the

period 2002–2004, SCA continued to grow by

acquiring companies, which contributed to a fur-

ther increase in sales of 17% up to the end of

2005. In 2006, the Group launched more new

products than ever before and as a result of the

growth in volume, SCA’s net sales exceeded SEK

100bn for the first time. In 2008, sales increased

by 4% compared with the previous year and

amounted to slightly more than SEK 110bn. Sales

in Personal Care and Tissue rose, while Packag-

ing and Forest Products declined. In 2009, sales

continued to rise slightly, mainly in Personal Care

and Tissue, while Packaging reported a decline.

Sales declined somewhat in 2010, mainly due to

negative exchange rate effects and the divest-

ment of the Asian packaging operations. During

the ten-year period, the Group’s sales increased

by about 5% annually (CAGR).

Operating profitProfit rose by 54% for Hygiene Products in 2001,

which is partly attributable to the acquisition of

Georgia-Pacific Tissue. Packaging and Forest

Products also continued to perform well in 2001

and, as a result, a new record-high operating

profit, adjusted for nonrecurring effects, could be

reported. The increase for Personal Care prod-

ucts and Tissue continued in 2002. The increase,

which was 24% for Personal Care products, can

be attributed to volume growth and lower raw

material and production costs. The improvement

for Tissue amounted to 21% and is explained by

the acquisition of CartoInvest as well as lower raw

material and production costs. The operating

profit in 2002 for Packaging and Forest Products

declined as a result of lower prices.

Personal Care did not reach the 2002 profit

level again until 2006. This business area had

been under pressure from rising raw material

costs and intense competition, although growth

was favourable in both established and new mar-

kets. Earnings improved further in 2007. In 2008,

operating profit was stable, while it increased

11% in 2009 as a result of an improved product

mix, higher prices and lower raw material costs.

Earning declined in 2010. Higher volumes and

lower costs failed to compensate for higher costs

of raw materials, marketing activities and cur-

rency effects.

In the Tissue business area, earnings from acqui-

sitions did not compensated for lower prices,

higher raw material and energy costs and the

negative effects of currency movements. This

resulted in a gradual decline in operating profit for

a number of years starting in 2002. In 2007, this

negative trend was reversed and operating profit

increased once again. With effect from the fourth

quarter of 2007, the acquisition of Procter & Gam-

ble’s European tissue unit is included in SCA’s

Tissue operations, which had a positive impact

on earnings. In 2008, earnings increased mainly

as a result of acquisitions and higher prices and

volumes, which were offset by higher costs for

raw materials. To date, 2009 was the strongest

year for Tissue. Prices rose at the same time as

raw material prices declined. SCA invested in

emerging markets, including Russia, which also

contributed to the positive earnings trend. In

2010, earnings declined for Tissue compared

with the previous year due to a sharp increase in

raw material costs.

Packaging’s operating profit declined in 2002

and 2003 from the record year of 2001, but

improved again in 2004, before price reductions

caused lower profit levels in 2005. In 2006, prices

improved gradually, first for containerboard,

which led to increases in the price of corrugated

board, and thus an improvement in profits.

Packaging also implemented successive price

increases in 2007. SCA sold its North American

packaging operations in the first quarter of 2007.

However, operating profit declined sharply in

2008 due to the financial crisis and the ensuing

recession. Production cutbacks in liner opera-

tions and lower demand for corrugated board

caused a deterioration in earnings. The recession

continued in 2009 and the result from Packaging

declined 72% compared with 2008. However,

savings from the restructuring programme initi-

ated during the year, combined with lower prices

for raw materials, contributed positively. The

restructuring programme begun in 2009 was con-

cluded in 2010 and a total of 16 corrugated board

plants and the mill for containerboard in the UK

were closed. In total, a personnel reduction of

approximately 2,100 positions was carried out.

By year-end 2010, the entire projected annual

savings of slightly more than SEK 1bn had been

achieved on an annual basis. Earnings rose

sharply in 2010 compared with the previous year.

For Forest Products, earnings declined after

the record 2001 year as a result of lower prices

and negative exchange rate movements. Earnings

subsequently improved at a gradual pace and the

business area reported its second highest profit

to date in 2007. The earnings improvement was

mainly an effect of higher prices. Deliveries of

publishing papers and solid-wood products were

stable in 2008, but earnings contracted due to

increased costs for raw materials, energy and

timber. In 2009, earnings improved, primarily for

publishing paper, where higher prices and lower

raw material costs made a positive contribution.

In 2010, earnings declined by 2%, with currency

effects having a significant negative impact. In the

publishing papers operations, raw material costs

rose at the same time as prices for SCA’s prod-

ucts dropped, which also had a negative impact

on earnings. Productivity improvements and

implemented price increases in pulp and solid-

wood products had a positive effect

on earnings.

Cash flow statementA total of SEK 64bn has been invested in expan-

sion during the reported ten-year period, of which

SEK 42bn is attributable to company acquisi-

tions. Maintenance investments amounted to

SEK 44bn and have remained at a steady level of

around 4% in relation to sales.

Key ratiosDuring the reporting period, the Group’s dividend

rose from SEK 2.92 to the proposed SEK 4.00,

corresponding to an annual increase of approxi-

mately 4.5%. The proposed dividend of SEK 4.00

per share corresponds to an increase of 8% com-

pared with the preceding year.

SCA Annual Report 2010 99

SCA Data

Page 104: SCA Annual Report 2010 En

Description of costs

Raw materials, energy and transport activities 2010

Of which

Pulp 8%

Paper 5%

Recovered paper 7%

Timber/chips 3%

Super absorbents 2%

Non-woven 1%

Other 4) 11%

Total Raw materials and consumables 37%

SCA Group

Energy, 6%

Transport and distribution expenses, 12%

Other costs of goods sold3), 30%

Raw materials and consumables, 37%

Sales and administration expenses2), 15%

Total operating expenses1): SEK 99,645m

Of which

Pulp 10%

Super absorbents 8%

Non-woven 6%

Other 9%

Total Raw materials and consumables 33%

Personal Care

Energy, 1%

Transport and distribution expenses, 10%

Other costs of goods sold3), 27%

Raw materials and consumables, 33%

Sales and administration expenses2), 29%

Total operating expenses1): SEK 22,105m

Of which

Paper 20%

Recovered paper 9%

Other 13%

Total Raw materials and consumables 42%

Packaging

Energy, 6%

Transport and distribution expenses, 10%

Other costs of goods sold3), 31%

Raw materials and consumables, 42%

Sales and administration expenses2), 11%

Total operating expenses1): SEK 28,071m

1) Excluding items affecting comparability.2) Sales and administration expenses include costs for marketing

(4 percentage points).3) The two largest items of Other costs of goods sold comprise

personnel (12 percentage points) and depreciation (6 percentage points).

4) The item Other in Raw materials and consumables includes costs for chemicals, packaging material and plastic material.

Of which

Pulp 16%

Recovered paper 8%

Other 10%

Total Raw materials and consumables 34%

Tissue

Energy, 8%

Transport and distribution expenses, 12%

Other costs of goods sold3), 33%

Raw materials and consumables, 34%

Sales and administration expenses2), 13%

Total operating expenses1): SEK 36,910m

Of which

Timber/chips 20%

Other 19%

Total Raw materials and consumables 39%

Forest Products

Energy, 8%

Transport and distribution expenses, 15%

Other costs of goods sold3), 34%

Raw materials and consumables, 39%

Sales and administration expenses2), 4%

Total operating expenses1): SEK 14,676m

Timber/chips

Tissue, 10%

Packaging, 19%

Forest Products, 71%

Personal Care, 0%

Total of 9.5 million cubic metres

of which, 50% from own forest and 50% purchased externally

Market pulp

Tissue, 72%

Packaging, 0%

Forest Products, 7%

Personal Care, 21%

Total of 1.8 million tonnes

of which, 41% from own pulp mills and 59% purchased externally

Recovered paper

Tissue, 38%

Packaging, 42%

Forest Products, 20%

Total of 4.4 million tonnes

of which, 36% from own collection and 64% purchased externally

Personal Care, 0%

Energy

Fossil fuels, 43%

Biofuels, 33%

Electricity, 24%

Total of 28 TWh

Transport activities

Other means of transport, 30%

By sea, 70%

Total of 34.5 billion tonne kilometres

SCA Annual Report 2010100

SCA Data

Page 105: SCA Annual Report 2010 En

Production capacity (Capacity is stated in thousands of tonnes, unless otherwise indicated, and per year)

Tissue

Mill Country Capacity

Box Hill Australia 53

Stembert Belgium 75

Santiago Chile 61

Bogota Colombia 35

Medellin Colombia 39

Lasso Equador 24

Le Theil France 62

Orleans France 35

Altopascio Italy 25

Collodi Italy 42

Lucca Italy 140

Ecatepec Mexico 69

Monterrey Mexico 57

Uruapan Mexico 36

Sahagun Mexico 60

Suameer (2) Netherlands 8

Kawerau New Zealand 61

Drammen Norway 22

Sovetsk Russia 30

Svetogorsk Russia 43

La Riba Spain 26

Mediona Spain 45

Valls Spain 120

Jönköping Sweden 21

Lilla Edet Sweden 100

Chesterfield United Kingdom 31

Manchester United Kingdom 50

Oakenholt United Kingdom 68

Prudhoe United Kingdom 87

Mainz-Kostheim Germany 106

Mannheim Germany 266

Neuss Germany 105

Witzenhausen Germany 30

Barton US 180

Flagstaff US 53

Menasha US 211

South Glens Falls US 75

Ortmann Austria 124

Total 2,675

Personal Care

Production plant Country

Annaba (1) Algeria

Buenos Aires (1) Argentina

Springvale Australia

Santiago (1) Chile

Cali (1) Colombia

Rio Negro (1) Colombia

Santa Domingo (1) Dominican Republic

Cairo (1) Egypt

Quito (1) Equador

Linselles France

Amman (1) Jordan

Drummondville Canada

Shah Alam Malaysia

Ecatepec Mexico

Guadalajara Mexico

Gennep Netherlands

Hoogezand Netherlands

Te Rapa New Zealand

Olawa Poland

Veniov Russia

Jeddah (1) Saudi Arabia

Gemerská Hôrka Slovakia

Kliprivier (1) South Africa

Mölnlycke Sweden

Falkenberg Sweden

Ksibet el Mediouni (1) Tunisia

Bowling Green US

Packaging

Production plant Country Corrugated board Kraftliner Testliner/fluting

Corrugated board Belgium 96

Denmark 110

Estonia 30

Finland 40

France 193

Greece 75

Italy 490

Lithuania 35

Netherlands 174

Poland 40

Romania 22

Russia 60

Switzerland 30

Spain 187

United Kingdom 30

Sweden 110

Czech Republic 38

Turkey 140

Germany 408

Hungary 52

Austria 43

Containerboard

Lucca Italy 420

De Hoop Netherlands 360

Munksund Sweden 365

Obbola Sweden 310 125

Aschaffenburg Germany 380

Witzenhausen Germany 330

Total 2,403 675 1,615

The total number of facilities amounts to about 170.

Forest Products

Mill Country Newsprint

SC andLWC

paperMarket

pulpCTMP

pulp

Totalpulp and

paper

Solid-woodproducts1,000 m3

Aylesford United Kingdom 410 410

Ortviken Sweden 390 490 880

Östrand Sweden 430 90 520

Munksund Sweden 420

Bollsta Sweden 450

Tunadal Sweden 360

Rundvik Sweden 250

Vilhelmina Sweden 120

Holmsund Sweden 100

Gällö Timber (1) Sweden 400

Laakirchen Austria 520 520

Total 800 1,010 430 90 2,330 2,100

(1) Joint venture companies.(2) Non-woven production.

SCA Annual Report 2010 101

SCA Data

Page 106: SCA Annual Report 2010 En

Definitions and key ratios1)

Capital definitions

Capital employed The Group’s and business area’s capi-tal employed is calculated as an average of the balance sheet’s total assets, excluding interest-bearing assets and pension assets, less total liabilities, excluding interest-bearing liabilities and pension liabilities.

Equity The equity reported in the consolidated balance sheet consists of taxed equity increased by the equity por-tion of the Group’s untaxed reserves and non-controlling interests. (Deferred tax liability in untaxed reserves has been calculated at a 26.3% rate for Swedish companies and at the applicable tax rate for foreign companies in each coun-try outside Sweden).

Net debt The sum of consolidated interest-bearing liabili-ties, including pension liabilities and accrued interest less cash and cash equivalents and interest-bearing current and non-current receivables and capital investment shares.

Financial measurements

Equity/assets ratio Equity expressed as a percentage of total assets.

Debt/equity ratio Expressed as net debt in relation to equity.

Interest coverage ratio Calculated according to the net method where operating profit is divided by financial items.

Cash earnings Calculated as profit before tax, with a reversal of depreciation and impairment of property, plant and equipment and intangible assets, share of profits of associates, and nonrecurring items, reduced by tax pay-ments.

Debt payment capacity Expressed as cash earnings in relation to average net debt.

Operating surplus Expressed as operating profit before depreciation/impairment of property, plant and equipment and intangible assets and share of profits of associates.

Operating cash flow The sum of operating cash surplus and change in working capital, with deductions for current capital expenditures in property, plant and equipment and restructuring costs.

Cash flow from current operations Operating cash flow less net financial items and tax payments and taking into account other financial cash flow.

Strategic investments Strategic investments increase the company’s future cash flow through acquisitions of companies, capital expenditures to expand facilities, or new technologies that boost SCA’s competitiveness.

Current capital expenditure Investments to maintain competitiveness, such as maintenance, rationalisation and replacement measures or investments of an environmental nature.

Margins, etc.

Operating surplus margin Operating surplus as a per-centage of net sales for the year.

Operating margin Operating profit as a percentage of net sales for the year.

Net margin Profit for the year as a percentage of net sales for the year.

Capital turnover Net sales for the year divided by average capital employed.

Profitability ratios

Return on capital employed Return on capital employed is calculated for the Group as operating profit as a percent-age of average capital employed.

Return on equity Return on equity is calculated for the Group as profit for the year as a percentage of average equity.

Other measurements

Value added per employee Operating profit plus salaries, wages and payroll expenses divided by the average number of employees.

1) Calculations of key ratios are mainly based on guidelines issued by the Swedish Society of Financial Analysts. Averages are calculated based on five metrics.

SCA Annual Report 2010102

SCA Data

Page 107: SCA Annual Report 2010 En

Glossary

AFH (Away-From-Home) Tissue sold to bulk consumers such as restaurants, hospitals, hotels, offices and industrial premises.

Coating A surface treatment applied to paper or corrugated board packaging. Provides a smooth surface with good printing properties.

Consumer packaging Packaging sold together with its contents to the end-consumer.

Consumer tissue Includes toilet and kitchen paper, facials and paper handkerchiefs.

Containerboard The collective name for liner and fluting.

Converting plant Produces finished packaging from corru-gated board sheets supplied by a corrugated board plant or an integrated packaging plant.

Corrugated board Two outer layers of paper with an inter-mediate layer of fluting/folded paper (see liner and fluting).

Corrugated board plant Produces corrugated board that is then converted into finished packaging.

CTMP (Chemical thermo mechanical pulp) A high-yield pulp produced through the mechanical defibration in a refiner of preheated, chemically pretreated softwood.

Dispenser A device to dispense tissue or soap in public places.

Fluting The rippled middle layer in corrugated board, pro-duced from semi-chemical pulp or recycled paper.

FSC – Forest Stewardship Council an international organisation working to ensure responsible forest manage-ment. FSC has developed principles for responsible forestry that can be applied for certifying forest management and that facilitate FSC labelling of wood products from FSC-certified forests.

Liner The surface layer of corrugated board. Available in various grades, such as kraftliner (based on fresh wood fibre) and testliner (based on recovered fibre).

LWC paper Light Weight Coated paper is a coated paper with a high mechanical pulp content. Used for high-quality magazines and advertising materials with demanding colour-printing requirements.

Market pulp Pulp that is dried and sold on the open market.

Mechanical pulp Debarked wood that is ground or chipped for mechanical refining to separate the fibres to form pulp.

M3fo Forest cubic metre Volume of timber including tops and bark, but excluding branches. Used to describe the for-est portfolio of standing forest. Growth is also specified in for-est cubic metres.

M3s or m3sub Solid cubic metre under bark. Specifies the volume of timber excluding bark and tops. Used in felling and the timber trade.

Newsprint Paper for newspapers produced from mechani-cal pulp based on fresh wood fibre or recovered fibre.

Personal care products Here defined as incontinence care products, baby diapers and feminine care products.

Point-of-sale packaging Is used both to protect the goods and to promote the product in the store.

Productive forest land Land with a productive capacity that exceeds one cubic metre of forest per hectare annually.

Protective packaging Packaging that comprises material that protects the contents from vibrations, knocks or temper-ature fluctuations. The material ranges from foam plastics to corrugated board.

Recovered fibre Fibre based on recycled paper.

SC paper Supercalendered publication paper with a high-gloss surface and with a high content of mechanical and/or recycled pulp. Mainly used for catalogues, magazines and advertising materials.

Solid-wood products Wood sawn into various dimen-sions/ sizes: planks, joists, etc.

Super absorbents Collective name of a number of syn-thetic absorbent materials based on polymers. Important material in personal care products such as diapers and pads.

TCF pulp Pulp that is bleached without using chlorine in any form.

Transport packaging Mainly used when transporting goods from production to customer. The most commonly used material is corrugated board.

Wood fibre Wood fibre from felled trees (fresh wood fibre).

SCA Annual Report 2010 103

SCA Data

Page 108: SCA Annual Report 2010 En

Annual General Meeting and Nomination Committee

The Annual General Meeting of Svenska Cellulosa Aktie-bolaget SCA will be held on Thursday, 7 April 2011, at 3:00 p.m. in Stockholm Waterfront Congress Centre, Nils Ericsons Plan 4, Stockholm. Registration for the Annual General Meeting begins at 1:30 p.m.

NotificationShareholders who wish to attend the meeting must:• be listed in the shareholders’ registermaintained by

Euroclear Sweden AB (formerly VPC AB) as of Friday, 1 April 2011, and

• registertoattendtheAnnualGeneralMeetingnotlaterthan 1 April 2011.

Shareholders may register to attend in the following ways:• bytelephone:+4684029059,onweekdaysbetween

8 a.m. and 5 p.m.• viathecompanywebsite:www.sca.com• by mail to Svenska Cellulosa Aktiebolaget SCA,

Corporate Legal Affairs, P.O. Box 200, SE-101 23 Stockholm, Sweden.

To attend the Annual General Meeting, shareholders with custodian-registered shares must have such shares regis-tered in their own names. Temporary registration of own-ership, so-called voting rights registration, should be requested well in advance of Friday, 1 April 2011, from the bank or fund manager holding the shares.

Name, personal identity number/Corporate Registra-tion Number, address, telephone number, and the names of any accompanying persons should be stated when reg-istering to attend. Shareholders represented by proxy should submit a proxy in the original to the company prior to the Annual General Meeting. Proxy forms are available upon request and on the company website www.sca.com. Anyone representing a legal entity must present a copy of the registration certificate, not older than one year, or equivalent authorisation document listing the author-ised signatories.

DividendThe Board of Directors proposes that a dividend of SEK 4.00 per share be paid and that the record date for the div-idend shall be Tuesday, 12 April 2011. Payment through Euroclear Sweden AB is estimated to take place on Friday, 15 April 2011.

Nomination Committee• Carl-OlofBy,ABIndustrivärden,Chairmanofthe

Nomination Committee• HåkanSandberg,HandelsbankenPensionFoundation,

among others• PontusBergekrans,SEBFunds• TorbjörnCallvik,SkandiaLiv• BoSelling,Alecta• SverkerMartin-Löf,ChairmanoftheBoardofSCA

The Nomination Committee’s tasks include preparing the proposal for the election of members of the Board of Directors.

Detailed information concerning the Annual General Meet-ing can be found on the company website: www.sca.com

Interim report (1 Jan–31 Mar 2011) 29 April 2011

Interim report (1 Jan–30 Jun 2011) 21 July 2011

Interim report (1 Jan–30 Sep 2011) 25 October 2011

Year-end report for 2011 26 January 2012

Annual Report for 2011 March 2012

Annual reports, year-end reports and interim reports are published in Swedish and English (in the event of differ-ences between the English translation and the Swedish original, the Swedish text shall prevail) and can be downloaded from SCA’s website www.sca.com

Annual Reports can also be ordered from: Svenska Cellulosa Aktiebolaget SCA Corporate CommunicationsBox 200SE-101 23 Stockholm, SwedenTel+4687885100

Financial information 2011– 2012

The Annual Report was produced by SCA in collaboration with Hallvarsson & Halvarsson.Cover illustration: Kjell Ström. Photos:HåkanLindgrenandJulianaYondt.Printing: Elanders in Falköping 2011. Translation: The Bugli Company AB.

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341 123

The emission of green house gases from the production of this printed product including paper, other materials, and transports has been offset by investment in the corresponding amount of certified reduction units from the CDM project Gayatri Agro Industrial Power Limited.

SCA Annual Report 2010104

Page 109: SCA Annual Report 2010 En

SCA-koncernenSCA är ett globalt hygien- och pappersföre-

tag som utvecklar och producerar person-

liga hygienprodukter, mjukpapper, förpack-

ningslösningar samt skogsindustriproduk-

ter. SCA har försäljning i fler än 100 länder

under många starka varumärken.

nettoomsättning, mSeK

109 142

Rörelseresultat, mSeK

9 608

Sysselsatt kapital, mSeK

102 227

operativt kassaflöde, mSeK

9 755

medeltal anställda

45 341

Personliga hygienprodukterAffärsområdet består av tre produktseg-

ment: inkontinensskydd, barnblöjor och

mensskydd. Produktion sker vid 27 anlägg-

ningar i 23 länder. Försäljning i fler än 100

länder över hela världen.

Andel av nettoomsättning

22 %25 027 MSEK

Andel av rörelseresultat

29 %2 922 MSEK

Andel av sysselsatt kapital

11%10 620 MSEK

Andel av operativt kassaflöde

32 %3 230 MSEK

Andel av medeltal anställda

19 %8 610 anställda

MjukpapperMjukpapper för konsumenter omfattar toa-

lett- och hushålls papper, ansiktsservetter,

näs dukar och ser vetter. Inom mjukpapper

för storförbrukare – AFH-mjukpapper –

levererar SCA kompletta hygienlösningar

till företag och institutioner. Produktion sker

vid 38 anläggningar i 18 länder. Försäljning

i ett 80-tal länder över hela världen.

Andel av nettoomsättning

36 %39 870 MSEK

Andel av rörelseresultat

30 %3 041 MSEK

Andel av sysselsatt kapital

36 %36 168 MSEK

Andel av operativt kassaflöde

39 %4 033 MSEK

Andel av medeltal anställda

38 %17 327 anställda

FörpackningarSCA är en fullserviceleverantör av förpack-

ningar som erbjuder både transport- och

konsumentförpackningar. SCA har ett inno-

vationscenter och 16 designcenter. Produk-

tion sker vid 170 anlägg ningar i 21 länder.

Försäljning i 36 länder i Europa.

Andel av nettoomsättning

27 %29 633 MSEK

Andel av rörelseresultat

16 %1 577 MSEK

Andel av sysselsatt kapital

22 %22 229 MSEK

Andel av operativt kassaflöde

11%1 168 MSEK

Andel av medeltal anställda

34 %15 218 anställda

SkogsindustriprodukterProduktionen består av tryckpapper,

pappers massa och sågade trä varor och

sker vid 17 anläggningar i tre länder. Försälj-

ning främst i Europa, men även i Asien,

Nord-afrika och Nordamerika.

Andel av nettoomsättning

15 %17 123 MSEK

Andel av rörelseresultat

25 %2 455 MSEK

Andel av sysselsatt kapital

31%31 475 MSEK

Andel av operativt kassaflöde

18 %1 860 MSEK

Andel av medeltal anställda

9 %4 186 anställda

Detta är SCASCA skapar värde genom att infria kunders och konsumenters behov i en anda av innovation, ständig effektivisering och med en uttalad vilja att bidra till en hållbar utveckling. Vi utvecklar, pro du cerar och mark-nadsför personliga hygien pro dukter, mjuk papper, för packningar, tryck-papper och sågade trä varor med försäljning i fler än 100 länder. Under 2010 omsatte SCA 109 miljarder SEK och hade cirka 45 000 anställda.

MSEK

DanmarkAustralienSpanienNederländernaItalienSverigeFrankrikeUSAStorbritannienTyskland

0 4 000 8 000 12 000 16 000

Nordamerika, 9 %

Latinamerika, 6 %

Asien, 5 %

Australasien, 4 %

Övriga länder, 1%

Europa, 75 %

Koncernens största marknader

SCAs försäljning per region

Page 110: SCA Annual Report 2010 En

SVENSKA CELLULOSA AKTIEBOLAGET SCA (PUBL)PO Box 200, SE-101 23 STOCKHOLM, Sweden. Visiting address: Klarabergsviadukten 63 Tel +46 8 788 51 00, fax +46 8 788 53 80Corp. Reg. No.: 556012-6293 www.sca.com

Operations

GHC(GLOBAL HYGIENE CATEGORY)SE-405 03 GOTHENBURGSwedenVisiting address: Bäckstensgatan 5, Mölndal Tel +46 31 746 00 00

SCA TISSUE EUROPE ANDSCA PERSONAL CARE EUROPE MüNCHEN AIRPORT CENTER (MAC) Postfach 241540DE-85336 MüNCHEN-FLUGHAFEN GermanyVisiting address: Terminalstrasse Mitte 18 Tel +49 89 9 70 06-0Fax +49 89 9 70 06-204

SCA PACKAGING EUROPE Culliganlaan 1 DBE-1831 DIEGEMBelgiumTel +32 2 718 3711Fax +32 2 715 4815

SCA FOREST PRODUCTS SE-851 88 SUNDSVALLSwedenVisiting address: Skepparplatsen 1 Tel +46 60 19 30 00, +46 60 19 40 00 Fax +46 60 19 33 21

SCA AMERICAS Cira CentreSuite 26002929 Arch Street PHILADELPHIA, PA 19104USATel +1 610 499 3700 Fax +1 610 499 3402

SCA ASIA PACIFICUnit 516, 159 Madang Road Xintiandi, Luwan District SHANGHAI 200020ChinaTel +86 21 6135 7288 Fax +86 21 6135 7264